Arthur Anderson Case

Abstract

Arthur Andersen LLP was founded in Chicago in 1913 by Arthur Andersen and partner Clarence DeLany. After 90 years of hard work, this accounting firm become known as one of the

‘Big Five" largest accounting firms in the United States. Setting standards through trust, integrity, and ethics were values the firm believed in and advanced initiatives for the accounting profession. By the 1980s those strengths and undeniable integrity were lacking as accounting firms struggled to balance their commitment to independent audits and their consultant practices. In this paper I will answer four (4) questions related to the legal and ethical issues surrounding Arthur Anderson's mandated requirements for legal compliance, how, with the provisions of the Sarbanes-Oxley Act could things have played out differently, which elements for ethical decision making played a role auditing of companies accused of accounting improprieties, and how the evidence proving that Arthur Anderson's corporate culture contributed to its downfall.

Arthur Anderson: Questionable Accounting Practices

Review the mandated requirements for legal compliance (from Chapter 4) and determine which requirements apply to the Arthur Anderson case. Explain your rationale. There are two requirements of legal compliance that apply in the Arthur Andersons case. Both of which explains how to make sure people are not being taken advantage of as the result of an entity's negative business practices. One is the laws protecting consumers, which are "the laws that protect consumers to provide accurate information about products and services and to follow safety standards" (Ferrell, Fraedrich, & Ferrell, 2011, p. 98). The other is the laws regulating organizational compliance programs. This law protects businesses from other businesses, as explained in the text as, businesses that compete unfairly, in a why, where legal and social issues can result (Ferrell et al., 2011, p. 97). The incentives to encourage organizational compliance programs, speaks directly to the Arthur Anderson case. According to the text, "Gatekeepers such as lawyers, financial rating agencies and even financial reporting services must have high ethical standards." (Ferrell et al., 2011, p. 106). Businesses cannot assume these standards will just happen they have to be sure they are properly enforced and adhered to. Without compliance programs, loopholes are created for the dishonest.

Discuss how the issues with the Arthur Anderson case may have played out differently if the Sarbanes-Oxley Act had been enacted in 1999. The Sarbanes-Oxley Act established the requirements for corporate governance to prevent fraudulent behavior in business (Ferrell et al., 2011, p. 223). It would have helped with a different outcome on the Arthur Anderson case by improving internal

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