ANDERSON WORLDWIDE (USA) Arthur Andersen was founded as a partnership firm in 1913. acquired a strong reputation for audit & accounting , opened international offices during 50s.

In 1979 it surpassed 1000 partners and became the biggest business service firm. It reorganized itself in 1989.

In 2002, Anderson Consulting broke away from Anderson worldwide and became independent under the name of Accenture.

By 2002 Arthur Anderson was among the “Big Five” audit firm of the world. It had around 85,000 employees, 2300 clients and annual revenue of $9.3 billion. It was in the same year that the firm collapsed following a series of accounting scandals and filed for bankruptcy.

Causes of downfall of Arthur Andersen :1. Pressure of revenue : failure to withstand the revenue pressure

brought a negative influence on its corporate culture. It indulged in revenue growth through accounting irregularities and frauds. Large no. of mergers bought strain on the business.

2. Cost-Cutting policies : Its strategy focused on generating new business and cutting cost. The high risk clients added in 1990s needed special attention because of financial complexities. The cost cutting policies like partners retiring at age of 56, engaging fewer & less-experienced partners led to deficiency in applying audit standards.

3. Poor audits : It came under financial strain on account of payment of damages of $330 million to settle civil suits. Also a series of poor audits and restatement of Sun beam and Waste management , its clients, damaged its reputation.

4. Cozy relationship with Enron : Enron was one of the biggest clients of Andersen. It was receiving $52 million as audit fees from Enron. Despite suspicious findings of Enron, better audit repots were given by Anderson by sending untrained auditors.

5. Investigation : After the Enron collapse in 2001, the Securities & Exchange Commission and other US regulatory agencies started investigating other clients of Anderson. As a result the other clients such as WorldCom, Qwest Communication, Global Crossing and others filed for insolvency.

6. Obstruction in investigation : Anderson destroyed a large no. of Enron documents after the investigation initiated and hence was charged with obstruction of justice by the US District Court in March 2002. It was banned from taking further audits of public companies. It eventually collapsed in August 2002.

Audit and Governance Flaws :1. Deficient culture : The audit failure of its clients like Sunbeam,

Waste Management and Enron proved that leadership and culture were deficient at Anderson which led to an inevitable collapse of it. Several audit partners sided with the management teams rather than fulfilling their commitments, this showed lack of professionalism.

2. Conflict of interests : Anderson was providing audit, accounting and consulting services simultaneously and charging a huge amount of fees from these assignments which ultimately led to conflict of interests on many clients’ accounts. Providing non-audit service was denting the independence of the auditor.

3. Lack of independence : The maintenance of a permanent office space in Enron’s office is the biggest evidence that Anderson lacked independence. Its employees also joined many events organized by Enron. This cozy relationship made it very easy to continue with improper practices.

4. Long audit tenure : Many of its clients had long audit tenure which led to over friendly relations with them. Example, 20 years long audit tenure with Enron tended to develop over-familiarity which resulted in over-looking conflicting activities and deficiencies in internal control systems of the clients.