Arthur Andersen: Accounting Scandal

A. Summary In 1913, Arthur Andersen LLP was found in Chicago, developed to become one of the “big five” largest accounting firm in the US. In 2003, after 90 years of business, the Chicago-based accounting firm was forced to close its doors because of accounting scandal I. The advent of consulting In the 1950s, Andersen began providing consulting services and over the next 30 years, Andersen’s consulting business became more profitable. With quick development of consulting sector, in 1999, Andersen separated its business into 2 parts: consulting unit and auditing one. II. The collapse of Andersen 1. Baptist Foundation of Arizona: BFA invested in estate, financial sectors to raise money for church. However, they lost; as a consequence, they sold properties for entities who had borrowed their money before at inflated prices and took money from new investors to pay off existing investors to solve problems. In 1999, the schemes were investigated. In 2000, Andersen are accused for issuing false, misleading approvals of BFA’s financial statements and ignoring the warning of possible fraudulent activity by some BFA employees. 2. Sunbeam: In 1998, Andersen’s audits failed to address serious accounting errors happened at Sunbeam. Sunbeam was accused of inflating earning through fraudulent accounting strategies. Phillip Halow (the partner at Arthur Andersen) was accused of authorizing “unqualified” opinions on Sunbeam’s 1996, 1997 financial statements, even though he was aware of mistakes of Sunbeam’s accounting 3. Waste Management: Waste Management overstated earnings $1.4 billion, perpetrated a massive financial fraud over of more than 5 years. Andersen repeatedly issued unqualified audit opinions. Furthermore, Waste Management advised Andersen that it could earn additional fees through “special work’. Hence, Andersen wrote off the accumulated errors over 10 year period and changed its underlying accounting practices. 4. Enron: Enron