The fall of Arthur Andersen
Download as PPTX, PDF3 likes1,571 views
A. Andersen founded the accounting firm Arthur Andersen & Co. in 1913 in Chicago. He headed the firm until his death in 1947. The firm grew rapidly but eventually failed to withstand pressure to prioritize revenue over ethics. It provided accounting services for Enron but failed to follow accounting standards and destroyed documents, contributing to Enron's collapse in 2001. In response, Congress passed reforms like the Sarbanes-Oxley Act to strengthen oversight of public accounting. Arthur Andersen was forced into bankruptcy as a result of its role in the Enron scandal.
The fall of Arthur Andersen
- 2. Who was A. Andersen ? • Born 30 May 1885 in Plano, Illinois • In 1908, at age 23, he became the youngest CPA in Illinois. • In 1913 Andersen, Delany & Co was founded which later renamed to Arthur Andersen & Co. in 1918 • headed the firm until his death in 1947.
- 4. TIMELINE
- 5. From Grace to greed… The company failed to withstand the pressure. It leaded to a negative influence on Andersen’s corporate culture. "It came down to doing the job as quickly as possible and making the most money. They pushed the edge of the envelope--pushed it too far," said Dean Christensen Ethical and legal misconducts Accounting irregularities and fraud. Revenue growth
- 6. • Andersen leaders responded by pushing partners to become salesmen. To make sure auditors weren't just auditing, they began to be judged on how much new business they brought in. • The firm apparently lacked proper internal checks and balances to guard against conflicts of interest that were building within the consulting/ audit business.
- 7. Role of A. Anderson in the collapse of Enron • Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. • One of the world's major electricity, natural gas, communications, and pulp and paper companies. • The Arthur Andersen/Enron case came to light when Enron suffered a collapse in the third quarter of 2001 that resulted in the largest Bankruptcy.
- 8. • Sherron Watkins , senior position at Enron(whistle blower) informed CEO about the misleading financial reporting. As a result , Vinson and Elkins (law firm) investigated the matter. • During the investigation, Vinson and Elkins consulted with Arthur Andersen. They responded that the charges were serious, but that no action was needed because the accounting was acceptable Excerpts of Enron employee letter to CEO
- 9. • Enron reported annual revenues of about $101 billion between 1985 and 2000. • Stock price December 18, 2000, Enron's stock sold for $84.87 per share. October 16, 2001, the company reported losses of $638 million in the third quarter alone. December 2, 2001, Enron stock dropped to below $1 per share • Enron and Arthur Andersen improperly categorized hundreds of millions of dollars as increases in shareholder equity, thereby misrepresenting the true value of the corporation. Arthur Andersen also did not follow generally accepted accounting principles (GAAP) when it considered Enron's dealings with related partnerships. These dealings helped Enron to conceal some of its losses. • A.Andersen was also accused of destroying thousands of Enron documents
- 10. Reforms The US Congress responded quickly to the Enron debacle and other scandals by adopting an extensive set of reforms. • Sarbanes-Oxley Act Part of this act provides for the creation of the Public Companies Accounting Oversight Board (PCAOB) to establish auditing standards with approval by the SEC and to oversee the quality of work performed by auditing firms. Thus, the auditing of publicly traded companies is now regulated by the US federal government rather than by the profession itself. • Another reforms to is the requirement that CEOs and CFOs of SEC registrants must personally certify the fairness of the financial statements
- 11. conclusion • When faced with massive greed, collusion, and lapse of ethics among company, it is highly unlikely that any realistic form of regulation would have been able to prevent the financial losses to the employees, shareholders, and creditors of Enron. Its shareholders and its employees who had their pension funds invested in Enron shares suffered large financial losses. • Arthur Andersen received the ultimate “punishment,” being forced into bankruptcy by the market place, and became a negative example for other major accounting firms
- 12. Bibliography • www.hg.org • Gary M. Cunningham, ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A • www.nytimes.com,enrons collapse the auditors who’s keeping the accountants accountable • www.chicagotribune.com • www.gaaaccounting.com, andersen-auditing-and- atonement-the-accounting-profession-10-years- after-enron.
- 13. Thank you