Case study on Arthur Andersen.docx - Case Study on \u201cArthur Andersen\u201d Course Auditing Course Code ACT 341.1 Prepared For Prepared By Name ID Date of

Case study on Arthur Andersen.docx - Case Study on...

This preview shows page 1 - 4 out of 7 pages.

Case Study on Arthur Andersen” Course : Auditing Course Code : ACT 341.1 Prepared For Prepared By Name ID Date of Submission: 10 June, 2012
Image of page 1
1 Question # 1 : Describe Arthur Andersen’s organizational culture and explain how the firm’s culture may have contributed to its downfall. In the beginning, Andersen was a watchdog. Founder Arthur Andersen made the firm's name stand for something nearly a century ago, when he refused a client's demand to approve a ledger that falsely inflated profits. For decades thereafter, an auditing opinion from Andersen was the gold standard for corporate books and records. If Andersen said the numbers were solid, then investors, bankers, regulators and the public at large could count on it. Over time, greed corrupted Andersen. Its leaders became more devoted to collecting hefty fees than keeping books straight. Clients paid a fortune for Andersen's consulting services, making its basic function of auditing into little more than an afterthought. The firm's most experienced accounting technicians, the sticklers who maintained its principles, saw their status plunge in the partnership's hierarchy. As Enron ran wild, Andersen's Professional Standards Group proved too weak to intervene. Money had trumped honest services. The decentralization of the firm was a big challenge for auditors because it was hard to oppose some clients who desired to see the limits of accounting principles. For example, the energy trading firm Enron was a client of Arthur Anderson who paid a huge amount of money for consulting services which was a small fraction of Andersen’s revenue but that was big chunk amount for the local office. So in local office, the managers with individual goal of revenue, wanted Enron as their client though Enron wanted them to cheat on their investors by hiding their financial weakness. Enron's executives were able to lie about their business performance and prospects because Andersen went along. When the lies caught up with its client, instead of admitting its failure to safeguard the public trust, Andersen engaged in a cover-up. Its employees shredded not just a few Enron-related documents, but box after box, day after day, for a period of weeks. Andersen did exactly what Enron wanted them to do. As a result Andersen was charged of not full disclosure financial position to their investors and Enron was delisted by New York Stock Exchange and messed up the investment of many investors including 4000 employees. Finally Enron was bankrupted. As a result, Andersen was convicted for destroying audit related documents of Enron and it was at the end of the day lost its right of practice.
Image of page 2
2 Question # 2 : Explain why the provision of non-auditing services to an audit client may compromise the auditor’s independence. In your answer, list two threats that jeopardize compliance with the principle of independence and explain why they are threats.
Image of page 3
Image of page 4

You've reached the end of your free preview.

Want to read all 7 pages?

  • Summer '15
  • MuinUddinAhmed
  • Auditor's report, Big Four auditors, Arthur Andersen

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture