Last Updated 27 May 2020

Andersen’s Case Auditing and Assurance Services

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Arthur Andersen was one of the five biggest accounting firms in United States. Arthur Andersen is specific example about the most recent business collapse, which is considered profound in American business history. The firm, practicing in more than 80 countries with thousands of employees, now lost its reputation as an audit and accounting firm. There are many different thoughts and judgments about the case when Arthur Anderson failed its tasks to detect fraudulent financial activities on Enron and several different companies.

The Enron Company filed bankruptcy in December of 2001. Being well known as a big energy company which headquarters is located in Houston, the bankruptcy of the company drew lots off attentions from business world. Questions were asked and lots of financial misstatements were revealed and Arthur Andersen – Enron’s external auditing and accounting firm in Houston, was involved. Stephens (2002) stated, Arthur Andersen who were responsible for managing Enron’s audits, had illegally destroyed paper and electronic documents related to their representation of Enron (p. 4). The case soon went to the jury. Louwers et al. (2011) reported the instructions hinged on the wording of statue that makes it a crime to knowingly use intimidation or physical force, threaten, or corruptly persuade other person. According to Oxford Dictionaries online, corrupt means having or showing a willingness to act dishonestly in return for money or personal gain. In this case, the word “corrupt” was not applied appropriately to the actions of Anderson. There was no evidence to prove that there is a person who is corrupt persuader.

Who was the one that acted dishonestly? The court also needs to identify the personal gain that a corrupt persuader can gain from having such action. The court could not find the answers to this issue, which means the decision is attached to the firm’s fate – Arthur Andersen. Research by Stephens (2002) states that to clarify the instruction of Judge Harmon about “corruptly”, the prosecution describes the illegal conduct of four corrupt persuaders: Duncan, Temple, Thomas Bauer, and Michael Odom.

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After a few days, the jury was not required to unanimously agree on the single corrupt persuader’s identity (Stephens, 2002). As Louwers et al. (2011) stated that the issues that overturned the Andersen verdict were based on faulty jury instructions, not on whether Andersen was in fact guilty or innocent. It was not Andersen who violated the law; it is individuals of the company who did. Hoxter (2005) argued that the instructions were faulty because they did not require proof that Andersen officials knew they were doing something wrong.

The ruling destroying the documents was not a crime. There must be a person with authority who sent out the instructions for Arthur Andersen employees to do so. As Stephens (2002) restated from the interviews with reporters after the verdict, four jurors identified Temple as that person. It is appropriated for the Supreme Court to overturn the lower court’s decision because Judge Harmon used the word “promptly” with different meaning from the dictionary, which is “improper purpose”, such as intent to subvert or undermine the fact finding ability of an official proceeding.

The lower court failed in identifying the specific person who is corruptive persuader. According to Duska (2005), Arthur Anderson, a venerable firm, at one time, prided itself in its role as auditor since it fulfilled an important public function. As auditors, Andersen’s employees should have had clear minds to make sure that the financial statements that they audit are really what were going on in the company. However, big money that was made in the consulting means the responsibilities that auditors have to face is heavier.

The SEC and the department of Justice should’ve tried to targeted specific individuals who had engaged in acts because it seems not fair for the rest of the firm. According to Cunningham (2005), “It is a shame that the actions of a few individuals at Andersen caused 28,000 employees in the U. S. to lose their jobs” (p. 6). Indeed, putting the complete firm out of business for the unethical actions of a couple of individuals was the real sin. Andersen’s conviction was overturned does not mean that its employees acted in ethical manner.

McNamee and Palmeri (2002) provided information about Arthur Anderson’s cleaning-up mission when the Enron case started to topple. From Anderson’s internal document, Enron team was also busy amending four key memos to correct the record of its review of Enron’s convolute and conflicted partnership deals (McNamee and Palmeri, 2002). Moreover, David Duncan overruled the concerns on at least four occasions, siding instead with Enron on controversial accounting that helps to hide debt amount and brought up the earnings.

That is not all, there are also evidences said that Duncan’s team wrote memos which are falsely stated that PSG partners had signed off on Enron’s inventive bookkeeping. Nancy Temple is the attorney for Arthur Andersen. She is the one who should clearly know about all the regulations and should not be the one who acted unethically. According to McNamee and Palmer (2002), memos from Nancy Temple to David Duncan were found which can considered the main key in the conviction of Duncan about shredding the documents. It is more for Nancy Temple who is more responsible for the Andersen saga.

The class action lawsuit against Andersen also has another name which include other entities name in there because those entities also had involved in Enron’s case. These entities helped Enron to cover up because by helping them they make more profit. From Arthur Andersen’s case, entities and accounting firms in business world should learn lessons for their own goods. If the employees notice of any concerning about the legality of any records, they should contact the legal department right away. There is nothing wrong disposing of business papers that are not needed.

It is illegal only when retention is required by law or regulation according to Stephens (2002). Reference Page Hoxter, C. J. (2005). Arthur Andersen Conviction Overturned. Caribbean Business, 33(25), 8. Duska, R. (2005). The Good Auditor - Skeptic or Wealth Accumulator? Ethical Lessons Learned from the Arthur Andersen Debacle. Journal Of Business Ethics, 57(1), 17-29. doi:10. 1007/s10551-004-3818-1 Stephens, D. O. (2002). Lies, Corruption, and Document Destruction. Information Management Journal, 36(5), 23. McNamee, M. , Borrus, A. , & Palmeri, C. (2002). OUT OF CONTROL AT ANDERSEN.

Businessweek, (3777), 32-33. Cunningham, C. (2005, July-August). Ruing Andersen's demise and the loss of audit competition. Financial Executive, 21(6), 6. Retrieved from http://go. galegroup. com. glbvv001. enmu. edu/ps/i. do? id=GALE%7CA134300985=2. 1=nm_a_enmu=r=EAIM=w In Oxford Dictionaries online. Retrieved from http://oxforddictionaries. com/us/definition/american_english/corrupt? q=corrupt Louwers, T. J. , Ramsay, R. J. , Sinason, D. H, Strawser, J. R, & Thinodeau, J. C. (2011). Auditing & Assurance Services (5th, ed. ). NY: McGraw-Hill Irwin.

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