Arthur Andersen

Arthur Andersen was an American accountant and business executive who founded a major accounting and professional services firm in the early 20th century. He built a reputation for rigorous audit standards and professional ethics that shaped corporate auditing in the United States and internationally, influencing practices used by firms like PricewaterhouseCoopers, Deloitte, Ernst & Young, and KPMG. Andersen’s firm became prominent in sectors including Railroad, Oil industry, Banking, Electric power, and Manufacturing.

History

Andersen began his career in 1890s–1900s corporate America, joining firms associated with the Chicago commercial hub and later founding his own practice that grew alongside institutions such as the Chicago Tribune and the Union Stock Yards. He mentored associates who later worked with corporations like General Motors, Standard Oil, National City Bank, AT&T, and United States Steel Corporation. During the Progressive Era, Andersen advocated for standards adopted by bodies including the American Institute of Certified Public Accountants and influenced legislation debated in the United States Congress. His firm expanded through the Great Depression, advising clients in the Securities and Exchange Commission era after the Stock Market Crash of 1929 and through postwar reconstruction alongside companies connected to the Marshall Plan and the World Bank. The firm developed offices in financial centers such as New York City, London, Toronto, Sydney, Tokyo, Frankfurt, Hong Kong, Singapore, São Paulo, and Mexico City.

Services and Business Practices

The firm emphasized auditing, tax consulting, and management advisory services for clients like General Electric, ExxonMobil, Caterpillar Inc., Boeing, and Ford Motor Company. Its audit methodology intersected with standards from the Securities Act of 1933, the Securities Exchange Act of 1934, and reporting frameworks promulgated by the Financial Accounting Standards Board and the International Accounting Standards Board. Andersen provided consulting to Information Technology projects for firms such as IBM and Microsoft and advised on mergers and acquisitions involving Bank of America, Citigroup, JPMorgan Chase, and Goldman Sachs. The firm’s training programs referenced continuing professional education requirements set by the AICPA and regulatory expectations from the Public Company Accounting Oversight Board and the Federal Reserve Board. Andersen’s partners served on advisory panels convened by the Department of the Treasury, the Internal Revenue Service, and the World Bank Group.

Enron Scandal and Legal Proceedings

The firm became closely associated with the collapse of Enron Corporation, a Houston-based energy trader, amid transactions involving special purpose entities and partnerships connected to firms like LJM1, LJM2, and counterparties including JPMorgan Chase and Citigroup. Investigations were led by the Federal Bureau of Investigation, the Securities and Exchange Commission, and prosecutors from the United States Department of Justice. Testimony in venues such as the United States District Court and appeals in the United States Court of Appeals examined actions involving shredding of documents, communications with Enron executives such as Kenneth Lay and Jeffrey Skilling, and accounting treatments tied to rules from the Financial Accounting Standards Board and opinions of the American Institute of Certified Public Accountants. The Arthur Andersen LLP v. United States prosecution reached the Supreme Court of the United States, which considered issues stemming from statutes codified in the United States Code and doctrines developed in prior decisions such as United States v. Arthur Andersen (case law reference).

Dissolution and Aftermath

Following convictions and regulatory actions, the firm lost clients and faced asset divestitures to competitors including KPMG, Deloitte & Touche, Price Waterhouse, and regional firms such as Grant Thornton and BDO International. Offices were reorganized into successor practices in jurisdictions across Europe, Asia, Latin America, and Australia, with many partners joining firms like McKinsey & Company and Accenture for consulting work. The collapse prompted legislative and regulatory reforms enacted in the Sarbanes–Oxley Act of 2002, increased oversight by the Public Company Accounting Oversight Board, and enforcement actions by the Securities and Exchange Commission and the Department of Justice aimed at firms such as Ernst & Young, PricewaterhouseCoopers, and Deloitte. Litigation produced settlements with corporations including Enron, WorldCom, and Tyco International.

Legacy and Influence on Accounting Standards

The firm’s rise and fall affected standards overseen by the Financial Accounting Standards Board and the International Financial Reporting Standards Foundation, catalyzing reforms to auditor independence rules, partner rotation policies, and audit committee responsibilities embodied in codes developed by the Institute of Internal Auditors and corporate governance guidance from the Organization for Economic Co-operation and Development. Educational reforms at institutions such as Harvard Business School, University of Chicago Booth School of Business, Columbia Business School, Stanford Graduate School of Business, Wharton School, and London School of Economics incorporated case studies derived from the firm’s work and its role in cases like Enron. The episode influenced professional debates in journals published by the AICPA, spurred changes at accounting firms including Grant Thornton International, and reshaped consulting markets that involve firms like Booz Allen Hamilton and Boston Consulting Group.

Category:Accounting firms Category:Businesspeople from the United States