Arthur Andersen’s Auditor Scandals

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Arthur Andersen scandals
Introduction
Arthur Andersen owned accounting firms in America, which provided services such as auditing, tax, and consultation. He was found guilty by the government of America on criminal charges based on the auditing of the firms such as the Enron(Energy Company) located in Texas, waste management incorporation which served three states, sun beam filed bankruptcy and WorldCom. The Waste Management Inc.’s was founded in 1971, which served over 27 million residential commercial municipal and industrial areas in three states. Mr. Andersen was the client hired by the company since 1971 to 1997 to audit the annual financial reports and every employee like the chief financial or accounting officer was employed by him. The scandal all started when one of Andersen’s employee Mr. Allgyer who worked as a Marketing Director in Arthur’s Chicago offices was employed as the top audit in the company (Nelson 280). Mr. Allgyer brought new aggressive practices of accounting which were considered improper and had misstated earnings over a period of time.
The Waste Management refused this recommendations and also to change their accounting practices but still Mr. Andersen gave clean bill of health on financial reports to the company. Andersen agreed to pay a fine of 220 million dollars to settle the litigations of the shareholders. According to Li (37) The WorldCom Inc. was Telecommunication Company situated in America. It was one of the largest in America and second largest in the world. The WorldCom Inc. had inflating profits due to improper accounting on theirs expenses. Mr. Andersen who was the company’s auditor was informed of the practices by the executive of WorldCom Inc. but he continued with his fraud.
The Enron scandal of revenue of 100 billion dollars which happened in 2001 led to the bankruptcy of the Enron Corporation (Energy Giant Enron). Andersen’s performance on the company as an auditor was followed by accounting frauds. The chief financial officer Mr. Andrew Fastow gave the committee poor financial report and risky accounting practices. He also made extra ordinary deals and fees. He made inflated profits that confused investors. The company used this risky accounting practices for years which were threat. He also pressured Anderson to ignore issues submitted to him by the committee. Mr. Anderson played his part by destroying documents of audit that were relevant to the Securities and Exchange Commission (S.E.C) investigations. He was convicted for obstruction of justice (Li 37).
The sunbeam was a brand company of making household appliances, coffee machines, alert smokes and camping equipment. According to the SEC sunbeam filed a bankruptcy protection in February 2001. The SEC says that Mr. Dunlap wanted to sell the company at a higher price so they employed fraudulent techniques to portray a false image of the company successes. The techniques employed include accelerating sales of future time into present time, use of improper bills, and use of reserves to inflate sales over the coming years. As a result over 189 million dollars were accounted as fraud. Mr. Anderson was also involved in the accounting fraud and he agreed to pay 110 million dollars to the Sunbeam Corporation (Li 37).
Andersen changed from a person with integrity to a person with technical competence towards focus on revenue. Mainly we see the change in the Enron scandal where CEO Berardino who was very aggressive in revenue changed Arthur’s culture. The motivation for Anderson and his partners were the revenue generations. Andersen had an accounting power house that created internal structures of strong corporate companies that collapsed due to the Enron scandal. Arthur changed to bad leader, he knew that his employee was giving improper accounts but he still covered the employee to continue with the money scandal. He held a high standard in accounting firm that brought him many clients in which he build trust with investors, he always argued about honesty but as we can see from the scandals, it’s not presented as his best virtue like in Enron scandal whereby he destroyed the documents (Nelson 284). He also approved the use of special purpose entities which is a legal entity that is created to isolate financial risk of a firm. He approved sheet that finances were off balance leaving out the equity risk of 3 percent. In short the character of auditor that was respected in the 80s and 90s was no more.
In conclusion, Andersen made some faulty decision’s which led to the scandals. He was ignorant to his employees bad accounting services like waste management scandal, he also gave fake reports on the audits to cover up for his employees like Mr. Allyger. He was not faithful to his clients with his standards of accountancy. He did brief the committee on opinions on the audits and advice the internal policies and laws which would have help the corporates to save the interest of the shareholders (Nelson 284). He also did not take his responsibility as the Company Auditor of the firms. Leaders are supposed to show a good examples to others, when one is chosen as a leader, he has great responsibility that he must undertake and fulfill his duty.

Work Cited
Li, Yuhao. “The case analysis of the scandal of Enron.” International Journal of Business and Management 5.10 (2010): 37.
Nelson, Karen K., Richard A. Price, and Brian R. Rountree. “The market reaction to Arthur Andersen’s role in the Enron scandal: Loss of reputation or confounding effects?.” Journal of Accounting and Economics 46.2 (2008): 279-293.