Arthur Andersen

Arthur Andersen. It was founded in 1913 by accounting professor Arthur E. Andersen and grew to become one of the world's leading professional services firms, renowned for its rigorous training and high ethical standards encapsulated in its motto "Think straight, talk straight." The firm expanded globally, providing audit, tax, and consulting services to major corporations and becoming a dominant force in the Big Five accounting firms. Its reputation was catastrophically destroyed following its criminal conviction for obstruction of justice related to its audit of the collapsed energy giant Enron, leading to the surrender of its CPA licenses and the effective dissolution of its U.S. operations in 2002.

History

The firm was established in Chicago in 1913 by Arthur E. Andersen, a former University of Chicago professor, who instilled a culture of integrity and technical excellence. Under his leadership, the firm earned early credibility by refusing to approve questionable accounting for a major client, the Chicago, Milwaukee, St. Paul and Pacific Railroad, during an economic downturn. Following Andersen's death in 1947, leadership passed to Leonard Spacek, who continued to champion audit quality and became a vocal critic of the accounting profession's permissive standards, often testifying before the United States Congress. The firm experienced tremendous growth in the latter half of the 20th century, building a vast international network and pioneering the development of a large-scale consulting practice, which eventually operated under the name Andersen Consulting. Tensions between the audit and consulting divisions led to a bitter and costly arbitration before the International Chamber of Commerce, resulting in the formal separation of Andersen Consulting in 2000, which later renamed itself Accenture.

Enron scandal and collapse

The firm's collapse was triggered by its involvement with Enron, a Houston-based energy trading company that was revealed in late 2001 to have perpetrated massive accounting fraud. As Enron's auditor, it had approved the company's use of complex special purpose entities to hide debt and inflate profits. After the Securities and Exchange Commission opened an investigation into Enron, personnel in the firm's Houston office, led by audit partner David B. Duncan, engaged in the widespread shredding of documents related to the Enron audit. This led to a federal indictment in March 2002 on a single count of obstruction of justice. The criminal trial, held in Houston in the United States District Court for the Southern District of Texas, resulted in a conviction in June 2002. The verdict, though later overturned by the Supreme Court of the United States, caused clients to flee and state accounting boards to revoke the firm's licenses, effectively ending its ability to practice public accounting in the United States.

Post-collapse operations

Following the conviction, the U.S. partnership effectively dissolved. Many of its international member firms, particularly in Europe and Asia, quickly negotiated mergers with remaining competitors. Large groups of partners and staff from around the world joined other members of the Big Four accounting firms, such as Ernst & Young, KPMG, Deloitte, and PricewaterhouseCoopers. In many countries, the local practice simply changed its name, often to the moniker Andersen Worldwide. A small remnant of the original firm, based in Chicago, continued to operate with a skeleton staff to handle the myriad of lawsuits and oversee the orderly wind-down of its affairs. Some of the non-U.S. operations that initially survived have attempted minor revivals in later years under the Andersen Global umbrella, focusing on tax and advisory services but not audit.

Legacy and impact

The firm's demise is considered a watershed event in corporate governance and the history of the accounting profession. It directly led to the passage of the Sarbanes–Oxley Act of 2002, which established the Public Company Accounting Oversight Board to oversee auditors and imposed stricter rules on auditor independence and corporate responsibility. The scandal permanently reduced the Big Five accounting firms to the Big Four, concentrating the market for large-company audits and raising concerns about competition. Its collapse is frequently cited in business ethics courses as a case study in how the erosion of a culture of integrity, particularly through conflicts between its audit and lucrative consulting services, can destroy a century-old institution. The name remains synonymous with corporate scandal, audit failure, and the catastrophic consequences of professional misconduct.

Notable alumni

Many former partners and employees achieved significant prominence in business and government. Notable alumni include Ivan Boesky, the arbitrageur later convicted for insider trading; Samuel A. DiPiazza Jr., who became CEO of PricewaterhouseCoopers; and Nancy Temple, the in-house lawyer involved in the Enron document retention policy. Former partner Paul Volcker served as Chairman of the Federal Reserve and later chaired the International Accounting Standards Board Oversight Committee. In the public sector, Carla A. Hills served as United States Trade Representative, and Thomas J. Donohue became the long-time president of the U.S. Chamber of Commerce. The founder of the consulting spin-off, Accenture, was also a senior partner within the original firm's practice.