Arthur Andersen Case
Overview
In order “to offer high-quality accounting services”, Arthur Andersen (AA), a Northwestern accounting professor started a business to offer services to clients promoting “integrity and sound audit opinions over higher short-run profits”. The company’s “four cornerstones” was good service, quality audits, well-managed staff, and profits for the firm. Their strategy was to focus on quality and high standards of audits rather than profits, a very successful strategy that led to consistent growth over the years.
Environmental, strategic, and organizational changes
In designing the optimal architecture for a given firm, market conditions, technology, and government regulation should be taken into consideration as these are important factors and determinants of strategy. At the top is firm’s external business environment which comprises of technology, markets, and regulations all of which feeds down strategy, organizational architecture, incentives and actions, and firm value.
In order to focus on generating new business and cut costs AA adopted a new strategy which involved evaluating its partners on how much new business they brought to the firm. This newly adopted strategy made it more about the numbers and making money. In order to reduce the costs they required partners to retire at the age of 56 years. With this strategy it led to the increased emphasis on revenue growth as well as expense reduction.
There were new partners that rose to the top, Steve Samek, a prominent example of a partner that was able to turn a $50,000 audit fee into a $3 million audit engagement. Although some rose to the top, such a policy it led to fewer experienced auditors and fewer partners overseeing audits and signing off on inaccurate financial statements for companies that overstated revenues due to improper write off of assets.
Another prominent change within the firm was when an Andersen engineer, Joseph Glickauf, demonstrated that computers were able to
In order “to offer high-quality accounting services”, Arthur Andersen (AA), a Northwestern accounting professor started a business to offer services to clients promoting “integrity and sound audit opinions over higher short-run profits”. The company’s “four cornerstones” was good service, quality audits, well-managed staff, and profits for the firm. Their strategy was to focus on quality and high standards of audits rather than profits, a very successful strategy that led to consistent growth over the years.
Environmental, strategic, and organizational changes
In designing the optimal architecture for a given firm, market conditions, technology, and government regulation should be taken into consideration as these are important factors and determinants of strategy. At the top is firm’s external business environment which comprises of technology, markets, and regulations all of which feeds down strategy, organizational architecture, incentives and actions, and firm value.
In order to focus on generating new business and cut costs AA adopted a new strategy which involved evaluating its partners on how much new business they brought to the firm. This newly adopted strategy made it more about the numbers and making money. In order to reduce the costs they required partners to retire at the age of 56 years. With this strategy it led to the increased emphasis on revenue growth as well as expense reduction.
There were new partners that rose to the top, Steve Samek, a prominent example of a partner that was able to turn a $50,000 audit fee into a $3 million audit engagement. Although some rose to the top, such a policy it led to fewer experienced auditors and fewer partners overseeing audits and signing off on inaccurate financial statements for companies that overstated revenues due to improper write off of assets.
Another prominent change within the firm was when an Andersen engineer, Joseph Glickauf, demonstrated that computers were able to