Arthur Edward Andersen

Arthur Edward Andersen, who was discipline, honesty and had strong work ethic, established an accounting service firm which became the world’s largest largest professional services organization later. In his accounting career, he insisted in his four-word motto which is “Think straight, talk straight.” to serve as a guiding principle in making important decisions. In his leading, the accounting firm grew faster. In 1947, several months after he died, Leonard Spacek replaced him. Leonard Spacek continued Arthur Andersen’s campaign to improve accounting and auditing practices in the US. He passionately believed that the primary role of independent auditors was to ensure that their clients reported fully and honestly regarding their financial affairs to the investing and lending public. The two persons’ strong leadership and business skills transformed the company which changed its name to Andersen into a major respected international accounting firm.

However, in the late 2001, Andersen came into the most significant crisis in its history. Ironically, the crisis stemmed from Andersen’s audits of Enron Corporation, the Energy company which is known for aggressive and innovative uses of accounting gimmicks to window dress its financial statements.

(Question 1) “It’s obvious that Andersen helped Enron cook the books. Andersen’s Houston office was pulling in $1 million a week from Enron—their objectivity went out the window.”

Andersen was the one of the parties responsible for Enron’s sudden collapse. It can be illustrated in three issues. First, Critics charged that the enormous consulting fees Enron paid Andersen impaired the audit firm’s independence. A second source of criticism directed at Andersen stemmed from the firm’s alleged central role in Enron’s aggressive accounting and financial reporting treatments for its SPE-related transactions.  Finally, the most embarrassing issue was the massive effort of Andersen’s Houston office to shred Enron audit documents, which eventually led to the demise of the firm.

So, the leadership of the Andersen firm is one of the most responsible for the crisis. The second one is the corporate executives of Enron which included Kenneth L. Lay, former Enron Chairman and CEO (resigned Jan. 23, 2002), Andrew Fastow, former Enron Chief Financial Officer (resigned Oct. 24, 2001), Jeffrey Skilling, former Enron Chief Executive Officer (resigned Aug. 14, 2001), J. Clifford Baxter, former Enron Vice Chairman (resigned May 2, 2001), Wendy L. Gramm, on Enron's Board of Directors serving on its audit committee, and Sherron Watkins, former Enron Vice President for Corporate Development who was titled by congress to be the internal whistle blower. They are eager for quick success and instant benefit and some of the actions made by those impertinent executives were almost like gambling. Their greedy and lack of ethics was one of the reason.

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