ARTHUR ANDERSEN LLP

GROUP 2
Ayushi Gupta
Bhagyashree Katdare
Bira Agarwal
Divyasha Ohri
Gaurav Kumar
Gurneet Kaur
Harshvardhan Saraswat
Himanshu Sumbria
 INDEPENDENCE:
Auditors
independent of
clients

AUDITING
PROFESSION
Tests the INTEGRITY: To
ANALYSIS & corporations maintain the
EXAMINATION financial statements trust among
reliability for peoplec
encouraging
investment by
public

CONFIDENCE:
Enhances
confidence and
provides
assurance
 Financial statements
prepared in
Purpose of accordance with
audit Generally Accepted
Accounting
Principles(GAAP)
HISTORY OF ARTHUR
ANDERSEN LLP
Founded in 1913 by Arthur Andersen who was hard
nosed accountant, prompt & straight-forward
Firms motto: Think straight Talk straight : $190000
discrepancy case

The company believed in good recruiting and training

The main trademarks of the company were honesty and

integrity

These practices made it tone of the Big Five CPA firms in USA

Died in 1947 and was followed by Leonard Spacek

Andersen Consulting
In 1954, Spacek introduced the firm to Consulting work by
helping GE develop Electronic Information System
Auditing firms were under pressure of cost cutting & search
of alternate revenue resources
Thus the Audit firms turned to business Consulting
By 1984, consulting business was more profitable than Audit
There was stiff competition between audit firms, thus the
fees reduced and standards decreased
Both units had separate requirements to operate, thus in
1989, Andersen consulting was created as a separate legal
commercial enterprise
There was a risk of success and the consulting partners had
to give up on Arthur Andersen
Revenue - $8.3 billion in 1998 & served 85 of Fortune largest
public companies
Units had revenue sharing arrangement, under which
consulting was paying $200 million to audit partners
 ANDERSEN WORLDWIDE

OTHER AFTER EFFECTS OF

SPLITTING
Arthur andersen awarded $1
Billion
 67%
65%
62%

58%
57%

43%
42%

38%
AUDITING
35%
33%
NON AUDIT
 Enron Audit
Enron Corporation Important Andersen Client
Biggest Bankruptcy Filing
Chapter 11 Bankruptcy protection on dec2,01
1997-2001 : Financial Statements revised
Impact: Erasing profit, increasing debt
Enron- Maximum Risk Profile
Professional Standards Group - Conflict over
Enrons accounting for the sale of options
Decision: Retail Enron as a client
 Failures BFA [$217]
Memo depicting the audit failures at Waste
Management Inc., Sunbean Corp, and Baptist
Foundation of Arizona (BFA)
Sunbeam
Audit partners pay docked in case of
[$110]
restatements.
Waste Management and Andersen were too
close. In fact its audit-committee had all
former Andersen auditors and thus mislead
Waste
audit reports on Waste Managements Management[$
financial statements for 1993-1996 95]
The relationship between Andersen and Waste
Management ended on 21st March 2002
Similarly, BFA had shell companies created by Colonial
insiders which hid a lot of debt in off balance Reality
sheet companies [$90]
Andersen ignored whistle blowers, altered
document, ignored red flag in accounting
industry.
Obstruction of Justice

Andersens personnel engaged

in wholesale destruction of
paperwork and attempted to
purge huge volumes of
electronic data which pertained
to information relevant to
Enrons collapse.
One count of obstruction of
justice: 18 U.S. Code 1519 -
Destruction, alteration, or
falsification of records in Federal
investigations and bankruptcy.

The investigation was launched

as per the SECs subpoena to
Andersen for Enron documents,
stating the obstruction was wide
spread and had continued over a
prolong period.
The Fall
Nancy Temples Memo: A memo reiterating the
firms document retention policy- the source of
Motive
Andersens previous troubles and its injunction
against future violations against security laws
affirmed the motive.
Then Andersens lead Enron Partner, David
Duncans testimony I obstructed justice,
On June 15 2002, Andersen was convicted.
SEC barred Andersen from functioning and hence
came the statement Andersen is dead. by the
newly appointed CEO of Andersen Worldwide.
SARBANES-OXLEY(SOX)
ACT,2002
Creation of the Public Company Accounting
Oversight Board (PCAOB)
Fixed personal responsibilities of CEO, CFO for
accuracy
Banned transactions and practices that could
be abused for personal gains
A requirement that companies on listed stock
exchanges have fully independent audit
committees
Prohibition on inside trades

Real time disclosures of material events

THANK YOU