Arthur Andersen Definition

Each became a separate entity with its own management structure responsible only to the parent company, Andersen Worldwide. Following Congress’ establishment of Federal Income Tax and the Federal Reserve in 1913, the demand for accounting services increased dramatically. The list expanded rapidly to include International Telephone and Telegraph, Colgate-Palmolive, Parker Pen, and Briggs and Stratton, among many others.

“This can only help us,” said Leslie Caldwell, head of the criminal division of the Justice Department’s San Francisco office and leader of its national Enron Task Force. “It sends a strong message that we are going to get to the bottom of the Enron debacle and those people responsible will be prosecuted.” The consultants, however, continued to resent transfer payments they were required to make to Arthur Andersen. As a result, Andersen Consulting changed its name to Accenture on January 1, 2001, and Arthur Andersen, having the right to the Andersen Consulting name, rebranded itself to “Andersen”. Andersen believed education was the basis upon which the new profession of accounting should be developed. He created the profession’s first centralized training program and believed in training during normal working hours.

A stickler for honesty, he argued that accountants’ responsibility was to investors, not their clients’ management. This gave rise to the uniform look of all the so-called “Arthur Androids”, as employees referred to themselves, the intent being to provide the same service the same way to all customers in all locations. Andersen refused in no uncertain terms, replying that there was “not enough money in the city of Chicago” to make him do it. The firm’s policy called for a
single central engagement file, which “should contain only
that information which is relevant to supporting our
work.” App. The policy stated that, “in
cases of threatened litigation, … no related information
will be destroyed.” Id., at JA—44.

Thus, Andersen was forced to rely on assertions, letters of representation and confirmation of loan balances from individuals within Enron, the Chewco and LJM partnerships and the banks and brokerages with which the partnerships did business. The collapse of Enron followed the restatement of Enron’s financial statements to reflect the consolidation of the off-balance sheet partnership (SPE), Chewco, which had been accounted for incorrectly because of fraudulent representations to Enron’s auditor, Andersen. The disqualification of Chewco as a non-consolidated SPE in turn disqualified JEDI, in which Chewco was a limited partner, from non-consolidation. Hardin argued that since several important documents survived the shredding, there was no conspiracy.

It also was censured and enjoined from committing
further violations of the securities laws. In July 2001, the
SEC filed an amended complaint alleging improprieties by
Sunbeam Corporation, and petitioner’s lead partner on the
Sunbeam audit was named. The outer limits of this element need
not be explored here because the jury instructions at issue
simply failed to convey the requisite consciousness of
wrongdoing. For example, the jury was told that,
“even if [petitioner] honestly and sincerely believed that
its conduct was lawful, you may find [petitioner] guilty.”
App. The instructions also diluted the meaning
of “corruptly” so that it covered innocent conduct.

CHRONOLOGY: Key Dates for Arthur Andersen

Neither Chewco, LJM nor any of the other parties to the fraud were Andersen clients. Thus Andersen had no access to the SPEs’ accounting records or documentation. Andersen was forced to rely on confirmations and oral and written representations (all of which were inaccurate) from the SPEs and third parties. Shareholders’ equity was incorrectly presented on Enron’s balance sheet for 2000 and in two unaudited quarters in 2001. In 2000, Enron recorded US$ 172 million as an asset rather than its correct presentation as a reduction in shareholders’ equity. The US$ 172 million misstatement was “less than one-third of 1% of Enron’s total assets and approximately 1.5% of shareholders’ equity of US$ 11.5 billion and had no impact on earnings or cash flow and therefore fell below the scope of the audit” (Berardino, 2001).

This study explores the publicly available evidence regarding Enron and Andersen, as well as the actions of politicians and financial institutions. The facts show that Enron officers committed fraud within off-balance sheet partnerships (SPEs) with the willing assistance of various prominent financial institutions. Neither the SPEs nor the financial institutions were audit clients of Andersen. Further, the SEC granted Enron a special exemption to investor protection laws, thus allowing Enron to set up the SPEs and setting the stage for the fraud. Later that year, Andersen received correspondence from a highly placed Enron employee indicating that highly questionable practices—later called fraudulent by a U.S. congressional inquiry—were being tolerated by key Andersen officials.

The only question is the identity of the shareholders left holding the worthless investment. Andersen also promptly acknowledged its own responsibility for an error regarding LJM1 and LJM1’s subsidiary, Swap Sub, both of which should have been consolidated in 1999 (Berardino, 2001). As soon as the US$ 100 million error was discovered in October, 2001, Andersen required that Enron restate its financial statements.

On October 12, Andersen’s in-house lawyer requested that the director of Andersen’s Houston office comply with the company’s documentation retention policy—all extraneous documents should be destroyed. Government hearings and meetings with the SEC and Justice Department dragged on. All reports indicated that what was destroyed was the sort of normal scrap paper that was supposed to have been destroyed by the end of an audit. Clearly, the failure to do so was poor job management and a breach of Andersen document policy. Andersen document policy further states that “in the event Andersen is advised of litigation or subpoenas regarding a particular engagement, the related information should not be destroyed” (Andersen Practice Administration, 2000, Section 4.5.4). Unfortunately the policy failed to address the situation where a client is under investigation but the SEC had neither subpoenaed Andersen nor even discussed the possibility with Andersen, which were the facts in the Enron case.

In response to the series of accounting scandals set off by Arthur Andersen, the U.S. The federal law established new or expanded requirements for all U.S. public company boards, management, and public accounting firms. An unexpected additional positive outcome of SOX is that this extra level of scrutiny has resulted in companies restating their earnings even if they have not necessarily intentionally misrepresented accounting information. The combination of more complex financial statements, more aggressive accounting techniques, greater concern for customer satisfaction, greater dependence on consulting fees, and smaller cost-effective sampling techniques created many problems for auditing firms. Arthur Andersen’s Houston office was billing Enron $1 million per week for auditing and consulting services, and David Duncan, the lead auditor, had an annual performance goal of 20% increase in sales.

Andersen Global Chairman and Andersen CEO Mark Vorsatz Quoted in Law.com

If our laws are inadequate in certain circumstances, debate them openly and change them as necessary. It must be noted that from a politician’s point of view, this is an unattractive prospect because politicians would lose leverage for collecting campaign contributions. Experts have disagreed on the question (Governmental Affairs, 2002c, p. 59). Even if the exemption is deemed appropriate, one can safely conclude that Mr. Levitt and Representatives Tauzin and Greenwood were not eager to have the public equate Enron’s lavish campaign contributions with their support for Enron’s exemption from a vital investor protection law. Chewco was a partnership formed to acquire the 50% interest in the JEDI partnership owned by the California Public Employees Retirement System.

If the fraud had been uncovered earlier, the stock price might not have been so over-hyped (by the same banks that, according to the Enron Bankruptcy Examiner, “aided and abetted” Enron’s fraud) (Batson, 2003b, pp. 38–39). However, shareholders are destined to be harmed in a bankruptcy even if there is no fraud. Their only recourse was to sell their stock to an unsuspecting buyer who would then suffer the loss. Thus, the question is not whether shareholders are going to be harmed in a bankruptcy or fraud.

On October 20, the Enron crisis-response team held a conference
call, during which Temple instructed everyone to “[m]ake
sure to follow the [document] policy.” Brief for United
States 7 (brackets in original). On October 23, Enron CEO Lay
declined to answer questions during a call with analysts
because of “potential lawsuits, as well as the SEC
inquiry.” Ibid. After the call, Duncan met with
other Andersen partners on the Enron engagement team and told
them that they should ensure team members were complying with
the document policy.

Andersen’s Aggressive Growth Moves Stateside

It also
separately provided that, if petitioner is “advised of
litigation or subpoenas regarding a particular engagement, the
related information should not be destroyed. See Policy
Statement No. 780–Notification of Litigation.”
Id., at JA—65 (emphasis deleted). In June 2001, petitioner entered into a
settlement agreement with the Securities and Exchange
Commission (SEC) related to its audit work of Waste Management,
Inc.

• Andersen also maintained that its attorneys had not been able to offer all evidence in defense of its practices.
• The list expanded rapidly to include International Telephone and Telegraph, Colgate-Palmolive, Parker Pen, and Briggs and Stratton, among many others.
• Although the instruction petitioner proposed, based on
  Shively, does not mirror the nexus requirement it now
  proposes, its actions were sufficient to satisfy Rule 30(d).
• In 2002 the partnership was found guilty of obstruction of justice for destroying documents related to the Enron audit, a decision later unanimously overturned by the United States Supreme Court.
• Yet anti-business hysteria fueled by politicians eager to distance themselves from the fact that they routinely exchange favors for campaign contributions created an unprecedented campaign of smear and innuendo against Andersen.

Such an assertion without proof would be extremely irresponsible, on a par with the assertions without proof made against Andersen. However, the actions of Congressmen Tauzin and Greenwood and former SEC Chairman Levitt did allow Enron to set up SPEs that set the stage for the fraud. Neither JP Morgan Chase, Citigroup nor Merrill Lynch were audit clients of Andersen.

Identity narratives under threat: A study of former members of Arthur Andersen

Just as there are many possible reasons for the death of a patient, there are many possible reasons why a fraud can be successfully hidden from auditors. The White House Report suggests that Bush officials then became deeply concerned about political and financial fallout of the Enron debacle” (Allen and Morgan, 2002). Since the bankruptcy of Enron, many concluded—before sufficient facts were available to form a reasoned judgment—that Andersen was responsible for the debacle.

However, from October 26, 2001—the last trading day before the lockdown—until November 12, 2001 when the lockdown ended, the stock dropped from US$ 15.40 to 9.24 (Ivanovich, 2001a). Although the 401(k) plan offered a selection of mutual arthur andersen funds in addition to Enron stock, participants had chosen to invest about 63% of the plan’s assets in Enron stock (Ivanovich, 2002a). The failure to diversify their investments had disastrous consequences for many individuals.

Accounting, professions and regulation: Locating the sites of professionalization

Many of the AABC firms were bought out by other consulting companies in 2002, most notably, Deloitte (especially in Europe), Hitachi Consulting, PwC Consulting, which was later acquired by IBM, and KPMG Consulting, which later changed its name to BearingPoint. In addition, several former Andersen partners formed new companies, notably Huron Consulting Group, West Monroe Partners, and Protiviti. In 1989, Arthur Andersen and Andersen Consulting became separate units of Andersen Worldwide Société Coopérative.

The District Court agreed over petitioner’s
objections, and the jury was told to convict if it found
petitioner intended to “subvert, undermine, or
impede” governmental factfinding by suggesting to its
employees that they enforce the document retention policy. Storage of workpapers must be both accessible and secure and is therefore extremely expensive. Like most people, public accounting firms are not eager to pay high fees to store trash. In an era plagued with identity theft, public accounting firms routinely shred scrap paper to protect confidential information such as clients’ taxpayer identification and bank account numbers. Arthur Andersen had been a highly respected and successful global organization, with 390 worldwide offices in the early 2000s.

Jury Finds Arthur Andersen Guilty

About 400 people were employed with the company in 1928, and by 1940 that figure had increased to 700. The firm opened more offices in Boston and Houston in 1937 and Atlanta and Minneapolis in 1940. On March 14, 2002, the Justice Department indicted Andersen for obstruction of justice.