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The Fall of Arthur Andersen - Organizational Culture Issues

            
 
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Case Details:

Case Code : HROB024
Case Length : 12 Pages
Period : 1990 - 2002
Pub Date : 2002
Teaching Note :Not Available
Organization : Arthur Anderson
Industry : Consulting
Countries : USA

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A Shamed Company Contd...

The DOJ, which had began proceedings in early June 2002 and concluded them in mid-June 2002, found Andersen guilty of obstructing SEC's proceedings. The SEC revoked Andersen's license to audit public limited companies and ordered the firm to pay a fine of $1,000 for obstructing state investigation (this was the highest fine that a state board could charge).

Andersen accepted the revocation and the fine, and declared that it would cease auditing corporate clients by the end of August 2002. After taking the above decision, Andersen laid-off its remaining employees and closed its offices across the US by the end of August 2002.

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Andersen was once known as one of the 'Big Five' accounting and consulting firms in the US that had prospered for nearly a century (Refer Table I). Considering the fact that the firm had itself set the standards for honest and law-abiding accounting ever since its inception, its shameful descent into becoming one of the 'Big Corporate Frauds' was even more painful and humiliating. According to industry observers, Andersen's fall can be seen as a perfect example of how even great institutions founded on integrity, value, stewardship and personal growth, could collapse in the absence of internal controls, a good work culture and sound values.

Background Note

Arthur Andersen (Arthur) and Clarence Delaney founded Andersen in Chicago, in 1913. Andersen was essentially a partnership firm, with all the chief auditors having a share in the firm. Arthur was one of the youngest Certified Public Accountants (CPA) in the US. He was invited to be the first salaried president of the New York Stock Exchange on account of his knowledge and expertise in the field of finance. However, he declined the offer so that he would be free to concentrate fully on Andersen. The firm, initially named Andersen, Delaney & Co., was engaged in the business of offering accounting services to companies.

The firm's name was changed to Arthur Andersen in 1918. Arthur gave a lot of importance to ethics and insisted on honest accounting, and the elimination of conflicts of interest that arose when accounting various companies. According to him, 'public accountants should be answerable to only the investing public and not to the companies they audit.'3

 Excerpts >>


3] 'Final Accounting' By Barbara Ley Toffler, with Jennifer Reingold.

 

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