Arthur Andersen

ON JUNE 16, 2002, the accounting firm of Arthur Andersen was found guilty of a felony charge of obstructing justice in the Securities and Exchange Commission (SEC) investigation of the collapse of the Enron Corporation. At the time of the conviction, Andersen was one of the five largest accounting firms in the world with approximately 85,000 employees across the globe. Within a year of the conviction, employees of Andersen numbered less than 300.

At the order of David Duncan, lead auditor for the Enron account at the firm's Houston, Texas, office, Andersen partners and staff destroyed more than a ton of Enron documents and deleted over 30,000 e-mails and computer files that were allegedly confidential to the account. The 17-day purge ended on November 9, 2001, when the SEC issued a subpoena for Andersen to cooperate in the investigation.

Once a leader in the accounting profession, both in bringing greater accountability to publicly traded corporations and in raising the level of professionalism for accountants, Arthur Andersen & Co. had earned a reputation over its 89-year tenure for responsible auditing and public stewardship. Arthur Andersen, a professor at Northwestern University, guided the Chicago-based partnership through the Great Depression and two world wars. But as the firm sought to maintain profitability through the 1950s and beyond, a gradual shift of focus from public accountability to client satisfaction brought about a series of subtle changes that would lead to scandal by the late 1990s.

The primary factor in the accounting firm's changing culture was the development of consulting services. First implemented in 1952, consulting teams offered services that met needs in the changing marketplace, particularly in the area of computer technology. Despite criticisms that consulting posed possible conflicts of interest, consulting revenues stabilized accounting firms such as Andersen in a corporate climate where auditing brought in decreased revenues at greater risk of litigation. In 1988, Andersen's consulting services became a separate business unit by the name of Andersen Consulting. During the 1990s, consulting revenues outpaced auditing, and in August 2000, Andersen Consulting separated entirely from Arthur Andersen and became known as Accenture.

Another factor in Andersen's increasingly client-focused culture was a 1992 shift in the firm's leadership that replaced older, more conservative partners with younger individuals who supported a new stress on sales and closer relationships with auditing clients. Andersen employees were encouraged to take “out placement” jobs with client firms and client satisfaction became the firm's focus rather than the traditional public stewardship goal of previous decades.

After this leadership shift, Andersen became embroiled in a number of litigations, including the Baptist Foundation of Arizona (BFA), Sunbeam Corporation, Boston Market Trustee Corp., Department 66, and Colonial Realty, most of which were settled with little media attention. In the case of Waste Management, Inc., the SEC charged that Andersen had issued five years' worth of misleading audit reports and levied a fine of $7 million to settle the case out of court, then the largest fine ever levied against an accounting firm, and Andersen paid $75 million to settle civil lawsuits.

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