...Ethics Unethical behaviors and practices in corporate America cause many faces to frown. This only causes the public to question why a number of people run their business with true honestly. Whereas, the other half run an entire business to the ground by attempting to fraud their customers and lie to the public about certain issues regarding the way they practice business. Another example of unethical practices would be insider trading, security fraud, and manipulation of the financial market. In some cases, unethical practice occurs because of greed, a sense of disconnection, and a sheer sense of ignorance. In this analysis, we will discover why, how and what business has ventured in this path of dishonesty. A prime example of this would be the Enron Corporation, which existed through the means of accounting and security fraud. Some brief information on the Enron Corporation is that it was “A U.S. energy-trading and Utilities Company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made Enron become the seventh largest corporation in the United States. Once the fraud came to light, the company quickly unraveled and filed for Chapter 11 bankruptcy on Dec. 2, 2001.” (“Investopedia: Enron, 2013.) As Enron began to unravel, there were numerous reports of more accounting fraud involving Enron’s accounting firm Arthur Andersen and how...
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...Arthur Andersen: Questionable Accounting Practices Steven Young Strayer University Business Ethics: Ethical Decision Making and Cases Dr. Mary Tranquillo November 13, 2012 Arthur Andersen: Questionable Accounting Practices p1 Arthur Andersen, one of the largest accounting firms in the United States, “a name that was synonymous with trust, integrity, and ethics” (Ferrell, Fraedrich, & Ferrell, 2011, p. 348), through a loss of its founder Arthur Andersen, and change in its corporate culture resulting in many unethical business transactions that affected multitudes of primary stakeholders had to close its doors in 2002 after 90 years of business. Review the mandated requirements for legal compliance (from chapter 4) and determine which requirements apply to the Arthur Andersen case. Explain your rationale After re-reading Chapter 4 there are five areas that separate the mandated requirements for legal compliance, and I feel the that two apply to the Arthur Andersen case; the protection of consumers, and incentives to encourage organizational compliance programs. In the laws that protect consumers they require businesses to provide accurate information protecting them from financial scams, unfair, fraudulent, or deceptive practices. There are “Gatekeepers” that are in charge of that such as lawyers, financial rating agencies, and financial reporting services that help enforce high ethical standards. This...
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...This paper will address and analyze the different ethical issues and the questionable accounting practices that occurred to one of the largest accounting firms in the United States. We will look and review the mandated requirements for legal compliance (from Chapter 4) and determine which requirements apply to the Arthur Anderson case. Then we will discuss how the issues with the Arthur Anderson case may have played out differently if the Sarbanes-Oxley Act had been enacted in 1999. Next we will determine and discuss which elements of the framework for ethical decision making in business (from Chapter 5) played the biggest role in the Anderson case. Explain your reasoning. Lastly, we will discuss how the situations at Arthur Anderson may have played out differently if their senior management had displayed the habits of strong ethical leaders. Provide specific examples to support your response. Introduction Known as one of the Big Five the Arthur Andersen firm was founded in 1913 by Arthur Andersen and his partner Clarence Delany. The company name was very synonymous for their integrity, ethics and trust, which is necessary for an accounting firm to have and stand by. Our textbook states, “Andersen set standards for the accounting profession and advanced new initiatives on the strength of its then undeniable integrity (pg. 348). Andersen once shown a strong character but with the rise of many high-profile companies filing for bankruptcy, that same...
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...could include integrity, reliability, honesty, responsibility, and prestige just to name a few. Enron and Arthur Andersen auditors had such a partnership where Arthur Andersen auditors provided accounting support. There were unethical practices that lead to the collapse of both companies. Arthur Andersen Auditors Arthur Andersen the founder of the company began his career at a young age. Mr. Andersen first partnered with another accountant to build an accounting firm. This partnership only lasted a few years. After the slip Mr. Andersen made it his mission to have his company do extremely well while having integrity in the accounting field. The company was taken internationally around the 1950’s. These years were very profitable for the company. There were known internationally and became very credible. In 1986 Arthur Andersen auditors began business with Enron. Enron Arthur Andersen auditors provided Enron with internal and external auditing for the business. Enron had a sizeable debt when it opens for business. The plans for the company was to purchase gas put it in a bank and then sell it to consumers. This was working well, however the debt was still noticeable. The problems arose when Enron began to lie on transactions and Arthur Andersen auditors looked the other way. There was important information being left out of reports. This was the beginning of the unethical behaviors by the companies. Downfall Derek Claybrook worked on preparing the audit papers for Enron...
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...responsibilities, and internal controls due to the increasing number of corporate fiascos. The Arthur Andersen scandal was one of many conducted worldwide and an example of how things can go wrong in the public sector. This report will briefly describe the Arthur Andersen scandal, analyze the major failure elements that led to the scandal, and finally provide recommendations that could have been implemented to prevent these issues. Overview, Issues, and Recommendations: The Arthur Anderson Scandal was mainly related to Enron’s scandal and fallout. The accounting firm was responsible for completing the audited financial statements of the company and was convicted of obstructing justice, after it shredded documents relating to Enron’s Audit and scandal. Many fiascos led to Andersen’s fallout. This included unethical practices, poor internal controls, and dysfunctional behaviour of corporate managers. - Unethical practices: o Shredding Enron’s audit documents and files on hand. o The use of Special purposes entity (SPE) in Enron’s accounting for projects. (False profits, and hide losses and unfavourable information from Enron’s financials) - Poor internal controls: o No Segregation of duties and conflict of Interest The Manager responsible for making decisions regarding client’s financials is the same manager directly involved in the profitability of the client Arthur Anderson was given the role of a consultant and an auditor for Enron which created a conflict of...
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...Enron and Arthur Andersen Accounting Scandal The Enron accounting scandal resulted in a loss of reputation to Arthur Andersen which was a result of fraudulent financial statement reporting. Crimes discovered included irregular accounting procedures which could be turned in as fraud which involved Enron and Arthur Andersen as its accounting firm. They were found to have committed wire fraud, security fraud, making false statements to banks, creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive who...
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...History: Arthur Andersen firm was founded in 1913 by Arthur Andersen and Clarence DeLany as Andersen, DeLany & Co.The firm changed its name to Arthur Andersen & Co. in 1918. Andersen, who headed the firm until his death in 1947, was a zealous supporter of high standards in the accounting industry. A stickler for honesty, he argued that accountants' responsibility was to investors, not their clients' management. Arthur Andersen was the first of the major accountancy firms to propose to the FASB that stock options should be included on expense reports, thus impacting on net profit just as cash compensation would. In 1989, Arthur Andersen and Andersen Consulting became separate units of Andersen Worldwide Société Coopérative. Arthur Andersen increased its use of accounting services as a springboard to sign up clients for Andersen Consulting's more lucrative business. What did Andersen do: 1. Previous business difficulties with Waste Management. Reputation suffered; lost public trust. 2. Conflict of interest due to large fees and the mix of services Anderson provided to Enron. Enron paid 25 million for the financial statement auditing work and 27 million for consulting services. --- whose bread I eat, his song I sing. If they make tough accounting decisions which impact Enron, they may lose additional revenues generated by consulting services. 3. Criminal charge: destroying documents related to Enron in Oct and Nov. 2001. Obstruction of justice. Andersen Now: Lost...
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...case of Arthur Andersen’s decent, compromises were made that in the end destined the accounting firm to cease to exist (Parrino, Kidwell, & Bates, 2012, Ethics Case). The learning team’s discussion surrounded the blatant conflict of interest, greed and the breach of fiduciary duties of the firm to provide objective evaluation of its accounting practices and independence from its clients. Greed Joe and Jeffery pointed in there reflections the change of the market during the 1980’s resulted in a boom of mergers and acquisitions, and additionally the consulting practice of the firm experienced an extreme growth. Andersen partners began realizing the potential in profits from consulting contracts as companies were on a spending spree. Eventually, its auditing services was no longer the main source of revenue for the firm Soon tension started between the two groups which lead to some of the auditors forming their own auditing firm. Auditors remaining with Anderson were now forced to sell consulting services to clients to gain market share in the consulting business through their audit clients. This and other tactics was the first of many decisions that contributed to unethical business strategies. One of Anderson’s largest accounts was Enron. $52 million in fees were received from Enron, 50% of which were for auditing, and 0% for consulting. Enron went bankrupt in 2001 after accounting regularities were discovered. The use of questionable accounting practices made the...
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...dissolution of Arthur Anderson, which was one of the five largest audit and accountancy partnerships in the world. Enron collapsed in large part because of unethical practices of its top officials; they abused their power and manipulated information, and put their own interests above those of their employees and the public. Examining the ethical and social responsibilities of Enron and lessons learned from the collapse will be reviewed. Analysis To better understand the company’s collapse, is to start by understanding the roles of Enron and Arthur Andersen and their top leaders. Enron was founded in 1985, and was one of the world’s leading electricity, natural gas, communication and pulp and paper companies before it bankrupted in late 2001 (Arnold, Beauchamp, Bowie, 2013). Independent stock analysts and journalists publicly raised questions about the value of Enron’s stock. Enron’s stock was trading at more than $80 a share, and Enron’s CEO, Jeffery Skilling was claiming that is should be valued at more than $100 a share. In October 2001, the Arthur Andersen auditing firm reversed their previous decisions and restated Enron’s financial situations. Arthur Andersen was once one of the “Big Five” accounting firms and was driven out of business by its role in the Enron case (Arnold, Beauchamp, Bowie, 2013). In the beginning of 2002, the United States Justice Department begun a criminal investigation into Arthur Andersen’s activities related to Enron. Andersen admitted that...
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...1/25/13 The rise and fall of Arthur Andersen Arthur Andersen Arthur Andersen was born in Plano, Illinois in 1885. He graduated the University of Illinois in 1908 with a degree in accounting. At the age of 23, he was the youngest Certified Public Accountant in the state of Illinois. From 1907 to 1911 he served as the Senior Consultant for Price Waterhouse in Chicago. In 1913, Andersen decided to establish his own accounting firm. At the age of 28, he founded the public accounting firm of Andersen, DeLany & Company in Chicago. Licensed as accountants and auditors in many states across the country, the company grew rapidly during the 1920s. The firm opened six offices nationwide, the most important of which were located in New York (1921), Kansas City (1923), and Los Angeles (1926). During World War II Andersen himself reached the pinnacle of his success. After World War II, Andersen began training his associate, Leonard Spacek, for the company's leadership position. Spacek joined the company in 1928 and was named a partner in 1940, becoming one of Andersen's closest and most trusted confidants. Upon Andersen's death in January 1947, Spacek took over the company, remaining committed to the regimented management style of the founder. During Spacek's tenure, the firm grew from a regional operation located in Chicago with satellite offices across the United States into an international organization with one-stop, total service offices located around the world. Spacek...
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...transformed the company into an energy-trading giant. During the time of merger, Enron was largest owner of inter and intrastate pipelines for transporting natural gas. With the help of government deregulation of prices of natural gas, Enron was able to sell its gas at higher prices, which significantly boosted its revenue. Enron pursued further growth by extending its natural gas business model to become a trader in electric power, coal, paper, pulp and water. By 2000, Enron has reached no. 7 on the Fortune 500 and claimed $101 billion in annual revenues. It had become a conglomerate that owned and traded all types of energy in financial markets. However among the success of Enron’s business strategy, were failed business attempts and unethical accounting approach to hide company’s debts. In 2001, Lay sold large amounts of Enron stocks while assuring its employees and shareholders that the company is in a great shape. After few months, Enron filed for bankruptcy in December 2001, the biggest in US history and over 20,000 employees lost their jobs, savings and pensions. In 2004, Lay was indicted for 11 counts of securities fraud, wire fraud, and making false and misleading statements. He was accused of lying about company’s financial status, when he knew what really was going around the company. However in 2006, Lay was found dead in...
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...Wk2 checkpoint Read the Arthur Andersen’s Troubles Ethics Case on pp. 107–113 (Ch. 2) of the text. Answer questions 1, 3, and 4 on p. 113 in 200 to 300 words. When responding to question 3, focus solely on the Enron case. Questions 1. What did Arthur Andersen contribute to the Enron disaster? I found an article in Time Magazine that discusses the fact that Andersen employees followed instructions from Enron executives to destroy documents. The Wikipedia article that I found lists the fact that Enron’s “nontransparent” financial statements “did not clearly depict its operations and finances with shareholders and analysts”. Wikipedia also mentions complex business models and unethical practices, including a modified balance sheet so that it portrayed a more favorable depiction of its performance. 3. What was the prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits: the public interest or something else? Cite examples that reveal this motivation. It sure seems to me that at least in the Enron case, if Andersen’s employees destroyed documents as discussed, they were certainly not acting in the interest of the public. Actions like that could only be meant to help the company interest in attempting to avoid prosecution. Much less the possibility that financial documents were potentially modified to hide the real transaction histories. 4. Why should an auditor make decisions...
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...The Rise and Fall of Arthur Andersen LLP In October 2001, Enron was accused of overstating their earnings in the last few years in excess of $1 billion dollars (Doost, 2001). At the same time, Arthur Andersen, one of the most reputable auditing firms, was responsible for auditing Enron’s financial statements. The Security Exchange Commission (SEC) ordered Arthur Andersen to provide all relevant Enron documentation and auditing files. Going against Arthur Andersen’s impeccable reputation of honesty, David B. Duncan, the Arthur Andersen partner in charge of the Enron account, had his staff destroy thousands of pages of documents and records related to this case of fraud (Oppel & Eichenwald, 2002). Ultimately, the Supreme Court of the United States overturned Arthur Andersen’s conviction of "knowingly...corruptly persuading another person to withhold or alter documents in an official proceeding" (Wojdacz, 2009). However, Arthur Andersen had imploded and was not able to recover. Founder and His Principles Arthur Andersen was founded December 11, 1913. Arthur Andersen had a reputation of exemplary honesty. Arthur Andersen himself came from an immigrant Norwegian family. He worked for Price Waterhouse. At 23, Andersen became the youngest certified public accountant (CPA) in the state of Illinois by educating himself at night (Marotta & Selman, 2009). At this time, CPAs were trying to establish accounting as a profession. Marotta and Selman (2009) stated Integral...
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...also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc. Source: http://en.wikipedia.org/wiki/Ethics • What is “Accounting”? Accounting is basically maintaining and providing records of transfer of funds for an individual or business. All the data collected from these records are then summarized in form of reports and statements, which are used by outside parties and the company itself for various uses and analysis. Source: http://www.investopedia.com/terms/a/accounting.asp#axzz1fbCBL2q0 Page 3 of 11 Ethics in Accounting With many scandals and scams coming out regarding the unethical behavior of firms in terms of Business and accounting, higher authorities in governments across the globe are worried. These scams are disturbing and damaging the economy at large. When the economy is already sliding down, governments have started taking extra care and strict rules are being applied to control the damage and prevent future damages. Why are the governments getting so serious? Accounts of a firm are one of the most important factors that decide that firms credentials. Data from a balance sheet is used to make important decisions and plan for the future. If a company’s accounts are not transparent and true, it misguides its investors and also its other departments from planning the...
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...Reflection: Week 2 Arthur Anderson was a leading accounting firm in 2002 and the organization was destroyed that same year A number of mistakes were made by Arthur Andersen leading to the failure of the organization; these were portrayed in the case, “A Sad Tale: The Demise of Arthur Anderson”. Arthur Anderson became commonly known for the motto “Think Straight and Talk Straight” (Parrino, Kidwell, & Bates, 2012). This motto served as an ethical guideline for the organization. Mistakes Made within the Organization Arthur Andersen quickly fell victim to accounting scandals within the accounting practice. The first mistake made within the organization was due to financial conflicts between the auditing department and the consulting department. Some of the consulting clients were also auditing clients and when the consulting departments profits exceeded the auditing departments profits, this created a conflict of interest. Maintaining the separation between these departments and the funds would have alleviated this issue. Another mistake made by the organization was the unethical act of forcing auditors to sell consulting contracts to their clients. This led to the largest mistake of reporting false information; the SEC charged Arthur Andersen with obstruction of justice, as the organization was found guilty of falsifying documents relating to Enron’s financial records. Actions to Prevent the Organizational Failure Leadership within Arthur Andersen had several options...
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