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Arthur Anderson

The eve of the SEC subpoena of Arthur Anderson’s files forms the back-drop of the Arthur Anderson case.   In addition to federal scrutiny, the massive media coverage of Enron’s failure has dragged Anderson out into the public spotlight as well.   Berardino knows he must do something immediately to help save his company.   A major problem is how to address questions regarding Anderson’s involvement with Enron.   Arthur Anderson has limited experience in this regard especially because accounting firms are usually under a rock, out of sight.   The public is uneducated on modern accounting practices and now they look like partners in crime.   They must answer to these new stakeholders now.   Unfortunately, they have almost zero experience in this regard.
There are many complicating issues in this case.   Anderson’s traditional internal auditing and accounting became usurped by the more profitable consulting work.   Higher commissions for consulting resulted in approval of poor auditing jobs.   Anderson employees were “cross-pollinated” in that audits, both internal and external, were performed by their accountants in addition to a significant amount of consulting work.  
Individual branches of Anderson lost their neutrality when they would forge extremely close relationships with the companies they would audit.   They would be the internal and external auditor for a company.   Due to this set up, an Anderson accountant would sign off on their own internal accounting work.  
A significant factor in accounting practices stems from changes in business.   During the 1990’s, new forms of assets and liabilities were created; firms entered into joint-venture agreements and conducted business over a vast array of markets.   These functions didn’t fit easily into regulatory framework set up by the government in the 1930’s.   These new strategies had never been done before and Anderson accountants had to discover new ways to monitor these transactions successfully.  
Arthur Anderson...