On December 2 of 2001, Enron Corporation filed for bankruptcy protection under
Enron had been considered a well-established company with stable earnings with no
extensive liabilities and was once the sixthe largest company in the United States.
image was shattered and Enron's stock plummeted; Enron's shares dropped from over $90 to
pennies. The fall of Enron was absolute when it revealed that much of its profit and revenue was
the result of deals with special purpose entities. Enron created these entities to fulfill narrow,
specific or temporary objectives designed to isolate financial risk: bankruptcy. In addition, Enron
did not report any of its losses or debts; thus, their financial statements were false. The fall of
Enron represented more than just the end of a successful corporation. The scandal resulted in the
termination of one of the world’s top five accounting firms, Arthur Andersen. This case explores
what happened to Enron in detail, and also what may be learned from this failure, and what
effect will these events have on the future of auditing.
In the Beginning
There was a time when Arthur Andersen LLP was one of the “Big Five” accounting
Then known as Andersen, DeLany & Co., it was founded in 1913 by Arthur Andersen
and Clarence DeLany (Ringle, 2002).
The firm later changed its name to Arthur Andersen &
Co. in 1918 when DeLany left the company (Arnold, 2002).
The founder, Arthur Andersen, had
an unwavering faith in education and a zealous support for high standards in the accounting
industry (Grace, 2002).
Proving this in his own life, he became the youngest CPA in Illinois at
the age of 23 (Ringle, 2002).
Promoting his beliefs with strong conviction to be responsible to
investors, not clients, and to emphasize on honesty and audit independence, he was often
recognized for encouraging his employees to “think straight and talk straight,” (Gullapalli,
It was only a matter of time until these moral principles just turned into an ethical façade.
After Arthur Andersen's death in 1947, Leonard Spacek continued to support and build
on the company’s reputation, emerging as managing partner at only 39 (Grippo, 2004).
Andersen Co. went from the 20th-largest firm in the world in 1947 to a leader among the Big