Arthur Andersen

Once a highly respected company, Arthur Andersen no longer exists having gone bankrupt in the wake of the Enron disaster. Arthur Andersen provided Enron with consulting and accounting services. The consulting division was more successful but the accounting division, with its long tradition of outstanding ethical service, was the corporation’s backbone. Arthur Andersen signed off on Enron’s use of mark-to-market accounting which allowed Enron to project optimistic earnings from their deals and then report these as actual profits years before they would materialize (if at all). They also signed off on Enron’s deceptive use of special purpose entities (SPE) to hide debt by shifting it from one fictional company to another. With Arthur Andersen’s blessing, Enron created the illusion of a profitable company to keep stock value high. When investors finally saw through the illusion, stock prices plummeted. To hide their complicity, Arthur Andersen shredded incriminating documents. For federal prosecutors this was the last straw. The Justice Department indicted the once proud accounting firm convinced that this and previous ethical lapses (Sunbeam and Waste Management) showed a pattern of unabated wrongdoing. Arthur Andersen was convicted of obstructing justice on June 15, 2002 and closed its doors shortly after.

Source: Business Ethics. Derived from Corporate Governance by William Frey,Jose A. Cruz-Cruz

McLean and Elkind provided background for this profile on Arthur Andersen. See below for complete reference.

AA Timeline (Taken from Smartest Guys in the Room):

1913–Founded by Arthur Andersen: “think straight, talk straight”. Stood up to Railroad company in early years. When asked to change accounting standards, Andersen said, “There is not enough money in the city of Chicago [to make AA give into client demands]”
1947-1963–Leonard Spacek became president of AA succeeding Arthur Andersen. Spacek helped motivate the formation of the Financial Accounting Standards Board. AA also served as conscience of accounting profession criticizing the profession and the SEC (Securities and Exchange Commission) for “failing to square its so-called principles with its professional responsibility to the public.”
1963-1989–Slow erosion of standards and development of competition between accounting and consulting divisions. (Consulting division was developed to take advantage of a profitable direction in the financial industry.)
1989–Consultants achieve relative autonomy as “separate business unit.” (McLean: 144)
1997–Consultants break from firm.
1988-1991–Arthur Andersen receives 54 million in fees from Enron
2000–Enron pays AA 52 million. The lion share of this was for consulting fees.
June 15, 2002–AA found guilty of obstruction of justice. “Today’s verdict is wrong….The reality here is that this verdict represents only a technical confiction.” (McLean: 406)