Aurther Anderson Involvement in Enron Scam

Team Members
1. Ambalika Handoo
2. Janhavi Joshi
3. Sonam Khanchandani
4. Chetan Kirtane
5. Kanchan khaladkar
6. Radhika kolhatkar
INTRODUCTION
Type Limited Liability Partnership
Founded 1913
Headquarters Chicago,Illinois,USA
Accounting
Professional services
Industry Tax
Consulting
Licenses of certified public
accountants
surrendered in 2002.
Products Professional services
Continue…
Revenues US$9.3billion(in 2002)
Employees approx.200 as of 2007
Website www.andersen.com
Cont…
Arthur Andersen LLP,based in Chicago, was one of
the “big Five” accounting firms among
PricewaterhouseCoopers,Deloitte touche
Tohmatsu,Ernst & Young and KPMG providing
auditing,tax,and consulting services to large
corporations.
In 2002,firm surrendered its license to practice as

CPA in US after being found guilty of criminal charges
relating to the firms handling of auditing of Enron, as
energy corporation based in Texas resulting loss of
85,000 jobs.
HISTORY
Arthur Andersen (1885-1947)
Arthur Andersen and Clarence Delany, both from
Price water house, bought out the audit company
of Illinois to form Andersen ,Delany & Co which
became Arthur Andersen & Co in 1918
Andersen Consulting split from the parent in 1989
to become the largest consulting firm in the world
and was renamed as Accenture on 01 Jan 2001.
He graduated from Kellogg school at northwestern
university after attending courses at night while
working full time.
Cont..
He created the professions first centralized

training program and believed in training during
normal working hours.
He was also chairman of the board of Certified
Public Accountant examiners Illionis.
While practising accounting he was also
associated with Northwestern university as a
lecturer and then professor.
REPUTATION
 Andersen headed the firm until his death in 1947 was a supporter of high standard in
the accounting industry.
 A stickler for honesty, he argued that accountants responsibility was to investors, not
their clients management.
 Leonard Spacek,who succeeded Andersen continued this emphasis on honesty.
 Andersen’s motto was “think straight and talk straight”.
 In 1990’s Andersen had succeeded in tripling the per share revenues of its partners.
Andersen Consulting and Accenture
The consulting wing of firm became increasingly
important during 70’s and 80’s .
In 1989,arthur Andersen and Andersen Consulting

became separate units of Arthur Andersen Society
Cooperative(wordwide)
In August 2000 the conclusion if the International

Chamber of Commerce granted its Independence but
awarded as US$1.2 billion and its name is now Accenture
 Founded Omaha, Nebraska, 1985
 Headquarters Houston, Texas,
 Revenue $101 billion (in 2000)
 Employees approx. 22,000 in 2000

approx. 0 as of 2008.
Formed in 1985,when
Internorth bought Houston
Natural Gas.
The company initially named
itself "HNG/InterNorth Inc."
Former HNG CEO Kenneth Lay
to become the next CEO of the
newly merged company.
Originally selected the name
"Enteron“.
Enron was originally involved
in transmitting and distributing
electricity and natural gas
throughout the United States.
 By 1992, Enron was the largest merchant of natural
gas in North America.
 The creation of the online trading model, Enron

Online.
 By 2001, Enron had become a conglomerate that

both owned and operated gas pipelines, pulp and
paper plants, broadband assets, electricity plants,
and water plants internationally.
Became world's leading electricity, natural gas, pulp
and paper, and communications companies, with
claimed revenues of nearly $101 billion in 2000.
Fortune named Enron "America's Most Innovative

Company" for six consecutive years.
 Enron, the large energy corporation, has been a

client of Andersen’s for 16 years up until Enron’s
2001 bankruptcy.
ENRON SCANDAL
How did the collapse
begin?
 Change in Policies for Energy Companies By
the Government in the Yr.1996
 Jeff Skilling’s Plan
 Use of Internet
 90% of Enron’s income came from trades
 Impact of Enron’s rapid growth
 Money to Invest
 Creation Of Partnerships (Condor and

Raptor)
 Fuzzy Numbers
 By December 2000, Enron claimed to have

tripled its profits in two years.
Sherron Watkins, the Enron
“Whistleblower”
 On October 22nd, The Securities and
Exchange Commission (SEC) announced that
Enron was under investigation
 Stock prices began to fall, as investors were
uncertain about the company’s stability.
 8th November, The Company declares about
it’s overstated earnings
 December 2001, Enron filed for chapter
11 bankruptcy
 It’s share price had collapsed from about

$95 to under $1.
 Loss of
$11 billions.
TIMELINE OF SCANDAL
Summer and fall of 2001:
Foresaw government litigations and
investigations against Andersen and Enron
October 16th,2001:
 Enron issued a press release announcing the
company’s $618m net loss for the 3rd quarter of
2001
 On the same day, Enron reduced shareholder’s
equity in the stock and the stock price
plummeted.
October, 2001:
 Enron informed Andersen to destroy all paper
documents and emails concerning Enron
Shortly after, the SEC started an investigation
of the two companies.
Lawyers defending Arthur Andersen argued
that shredding documents was a routine
practice
Eventually, Andersen was charged with
obstruction of justice for destroying the
documents before the collapse of the energy
giant
August 31, 2002 :
Surrendered its CPA licenses and its right to
practice
DOMINO EFFECT
What is DOMINO effect?
Domino effect in Arthur

Andersen case
BREATHER
Basic strategy:
1)Balance sheet with many intellectual assets like
patents and trademarks
2)Most of the debts and tangible assets of the
company on the balance sheets of partnerships
Shannon Adlong’s confession

Corrupt persuasion
Serious flaws in the jury instructions-Chief
Justice William Rehnquist
Settled investor claims without
acknowledging any fraud on its part
Sale of American operations:
 KPMG, Deloitte & Touché, Ernst & Young
and Grant Thornton LLP
Ownership of the partnership:

Omega Management I through IV
Current scenario:
As of 2009, Arthur Andersen LLP has not
been formally dissolved nor has it declared
bankruptcy
Chicago with 200 employees
SARBANES-OXLEY ACT
2002
Created by US Senator Paul Sarbanes (D-Maryland)
and US Congressman Michael Oxley (R-Ohio)
Signed into law July 30, 2002.
Most dynamic securities legislation.
In response to the Arthur Anderson, Enron and
WorldCom debacle, the Sarbanes-Oxley Act seeks to:
Restore the public confidence in both public accounting
and publicly traded securities
Assure ethical business practices through heightened
levels of executive awareness and accountability
The legislation is wide-ranging and establishes
new or enhanced standards for all U.S. public
company Boards, Management, and public
accounting firms.
 The most important part of the Act establishes a

new quasi-public agency, the Public Company
Accounting Oversight Board, which is charged
with overseeing and disciplining accounting firms
in their roles as auditors of public companies.
Some of the major provisions of the Sarbanes-Oxley
Act's include;
 a) Certification of financial reports by chief executive

officers and chief financial officers. Auditor independence,
including outright bans on certain types of work for audit
clients and pre-certification by the company's Audit
Committee of all other non-audit work.
 b) A requirement that companies listed on stock exchanges

have fully independent audit committees that oversee the
relationship between the company and its auditor.
 c) Significantly longer maximum jail sentences and larger

fines for corporate executives who knowingly and willfully
misstate financial statements.
CONCLUSION
Due to the downfall of Arthur Anderson, it
lost nearly all of its business and clients.
It lost not millions but billions of dollars
due to this intense investigation.
Arthur Anderson's motto of "Think straight,
talk straight" has forever been tainted in
the eyes of Americans corporations.
Anderson's involvement in the scandal
brought the ethics of accounting firms into
question.
Will there be another
Enron?
Yes
Recent years have seen an increase in the number
of financial statement frauds
 1977-87 (300); 1987-1997 (300); 1997-2002 (over 300)
Incentives still there (Stock Options, etc.)
No
Sarbanes-Oxley Bill contains many key provisions
 Executive “sign off”
 Requirement to have internal controls
 Rules for accountants (mandatory audit partner rotation;
Oversight Board, limitations on services, etc.)
Accountants are being much more careful

Aurther Anderson Involvement in Enron Scam

Uploaded by

Copyright:

Available Formats

Aurther Anderson Involvement in Enron Scam

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Aurther Anderson Involvement in Enron Scam

Uploaded by

Copyright:

Available Formats

Team Members

Revenues US$9.3billion(in 2002)

Employees approx.200 as of 2007

In 2002,firm surrendered its license to practice as

He created the professions first centralized

 Leonard Spacek,who succeeded Andersen continued this emphasis on honesty.

 Andersen’s motto was “think straight and talk straight”.

In 1989,arthur Andersen and Andersen Consulting

In August 2000 the conclusion if the International

 Revenue $101 billion (in 2000)

 Employees approx. 22,000 in 2000

 The creation of the online trading model, Enron

 By 2001, Enron had become a conglomerate that

Fortune named Enron "America's Most Innovative

 Enron, the large energy corporation, has been a

 Creation Of Partnerships (Condor and

 By December 2000, Enron claimed to have

 It’s share price had collapsed from about

Domino effect in Arthur

Shannon Adlong’s confession

Ownership of the partnership:

 The most important part of the Act establishes a

 a) Certification of financial reports by chief executive

 b) A requirement that companies listed on stock exchanges

 c) Significantly longer maximum jail sentences and larger

You might also like