Enron Didn’t Go Down Alone: Andersen Can’t Recover

In thinking about the aftermath of the Enron scandal I thought about our class discussion about what Arthur Andersen could have done to protect their interests after being involved with Enron. The cover up the Arthur Andersen continued further impacted the downfall of their company.  Arthur Andersen was found guilty in 2002 of obstruction of justice for shredding Enron documents as well as improper auditing practices.  An article from TIME magazine states that,The subpoenas were aimed at learning “what the officers knew and what they did about it.”  Andersen did nothing but get more involved with Enron.  Furthermore even if the company were able to continue practicing, their reputation is tarnished. Mark Cheffers, CEO of accounting Malpractice.com, says, “Even if they’re innocent, it looks like a massive cover-up.”  A cartoon

Andersen served as both Enron’s external and internal auditor and for many years it also served as Enron’s management consultant.  Much of Andersen’s time was spent covering up their involvement in the Enron scandal by getting further involved.  For example, an Andersen employee that questioned a practice while serving on an audit team was taken off of the Enron case.  Instead of trying to get out, Andersen just got further involved due mostly to greed.  Much, at the time, could be gained from a positive relationship with Enron.  They earned $52 million in fees in 2000 and Enron was their largest client.

Eventually, the conviction of Arthur Andersen was overturned by the Supreme Court in 2005.  This did nothing to help the company and they still have yet to return as an auditing business.  Andersen does still have the Q center, a conference and training facility in Chicago but the rest of the company was bought off.  Overall, it was stated that,  “The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron’s financial statements, or its obligation to bring to the attention of Enron’s Board (or the Audit and Compliance Committee) concerns about Enron’s internal contracts over the related-party transactions.”

The company went from having 28,000 employees nationally and 85,000 worldwide to just 200.  There are still over 100 civil suits filed against the company after Enron so much of their time is dedicated to the attention of legal issues.  These issues continue to tar the name of the auditing company as they continue to settle actions without admitting wrongdoing.  For example, Arthur Andersen agreed to pay $110 to Sunbeam who also had incorrect financial statements throughout the 1990s.

Could there have been fewer consequences if Arthur Andersen had gotten out early?  It would have been worth a shot.


3 Responses

  1. I am shocked that Arthur Andersen is still a company. I assumed that they were long gone after the whole Enron saga so it’s amazing that they still employ over 200 people. I think that even if Andersen had dropped Enron as a client before the energy company’s collapse, the company would still have probably faced similar backlash from the American public. Their involvement in other accounting scandals had already tarnished the company and one of this magnitude would have really made it hard for them to avoid severe government penalties and the loss of many of their important clients.

    • The 200 employees are simply there to handle the lawsuits that will exist into eternity. They do not actually practice audit work anymore (or at least I think).

  2. This is not surprising due to the fact that the audit world exists to substantiate legitimacy of other companies and create trust. The goodwill of any audit company is solely based on trust and integrity. There is no PP&E with this type of company — thus, if the trust of the company is compromised, it has nothing left. It is not surprising that the downfall of this company was so abrupt.

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