Arthur Anderson used to be one of the Big 5 accounting firms along with Deloitte and Touche, KPMG, Price Waterhouse and Ernst&Young.
I was briefly at an Indian subsidiary of EY(those days, the Big 5 weren’t allowed to operate by themselves without partnering with a local chartered accounting firm) because only certain firms could do bank audits and I wanted the experience at one if the Big 5. KPMG was known for its entertainment industry accounts. I picked E&Y for manufacturing and I think I ended up with an international cement conglomerate account. The Big 5 clearly decided who gets what industry. They operate like a cartel. They also had consulting divisions. AA after Enron simply focused solely on consulting and IT.
They are all ‘special’ kinds of hell. Just different flavors. AA/Enron scandal was a big deal and was the only talk for days and days and days.
[..] Andersen was responsible for checking the accounting of energy company Enron. The energy company went down with great noise because of shoddy accounting. Trouble came for Andersen as they had approved this accounting. After learning the Securities and Exchange Commission had begun an investigation of Enron’s accounting, orders were given at Andersen to destroy thousands of documents and e-mail messages. These illegal acts resulted in a conviction, which made it impossible to act as a public accountant for American stock exchange funds. Andersen decided to hand in its licenses before the SEC would withdraw them.[..]
[..] On appeal for the destruction of the files, Andersen was acquitted and there was no formal objection to the continuation of the audit practice. However, almost all employees had left due to the obscure practices. The practice had changed hands and the name would always be linked to this scandal. The few employees that stayed, worked on litigation arising from past audits, as well as pension issues and few other matters. Also there still is another firm which reminds us of the existence Andersen, namely Accenture. Accenture started off as the consultancy part of Andersen, which split off just in time, before the scandal happened.[..]
Arthur Andersen and Andersen Consulting had an expensive divorce in 1997ish, and Andersen Consulting became Accenture.
A very wise investment (basically the Accenture partners needed to pay off the rest of the AA partnership to leave) in retrospect.
AA based on my impressions was the top of the big 6 accounting firms in size and reputation. Wow did they bite it hard in Enron. They probably all fled like rats to the rest of the former big 6, but all that hard earned reputation....
I've seen a couple comments about Arthur Andersen, Enron, and Accenture in this thread and I just want to detail everything that went down in that situation.
Full Disclosure: I recently left a position with one of Accenture's subsidiary. I also hate that company.
The Supreme Court actually vacated Arthur Andersen's conviction for their actions in Enron. The SC basically said the jury instructions were too vague, and the jury could have believed that Arthur Andersen thought they did everything right and legally but still voted to convict. Arthur Andersen was never retried since there wasn't much left at that point anyway.
Arthur Andersen Accounting (or whatever they formally called themselves) and Arthur Andersen Consulting had already broken up into two different companies. They set up some weird agreement where the more profitable of the two would pay a cut of the profit difference to the other company. Consulting is always more profitable than accounting (which is why all the Big 4 have gotten back into even in the age of Sarbane-Oxley, where they can't audit a company they consult for), so Arthur Andersen consulting had to send a big-ass check to the accountants every quarter and they wanted to get out of that. The blow up of Arthur Andersen accounting presented the perfect opportunity. Arthur Andersen Consulting changed their name to Accenture to distance themselves from the Enron scandal, but it was mostly PR because they didn't have anything to do with Enron anyway.
McKinsey, however, had consultants all through Enron. I believe Skilling worked for McKinsey right out of college and threw them a ton of work. There's no way people at McKinsey didn't know what Enron was up to, but they somehow got off scot-free
This is a useful bit of knowledge, but to guard against people making irrational judgments about Accenture, it's important to note that (1) It was primarily Anderson's consulting divisions that went to Accenture, and (2) these large auditing firms have offices all over the US and world, and in these types of cases, it was really only a branch or two that were complicit in the fraud.
In the same way that we shouldn't condemn the employees of <INSERT TECH COMPANY> because senior leaders decided to <Censor/Abuse/Manipulate users> we shouldn't condemn otherwise ethical accountants because of the misdeeds of their colleagues - especially when they pass more stringent ethical requirements than developers.
Ironically, people couldn't differentiate the isolated incident, and AA liquidated/sold because no one wanted to do business with them. [0]
The old Anderson Consulting. Forced to change their name soon after they were spun off from the parent, so adopted Accenture. Which turned out to be a good thing because Arthur Anderson soon went bankrupt in the whole Enron debacle.
People sometimes forget that Enron’s collapse also took down their auditor, Arthur Anderson, which killed their audit business and spun the consulting business into what is now Accenture. The auditors in these situations are often as culpable as the companies.
If anyone should have known about Enron, it was McKinsey. They were all through that place, Arthur Andersen just looked at the financial reports. AA collapsed and the government went after them, but the Supreme Court vacated AA's conviction on the grounds that the instructions given to the jury were so vague the jury could have believed AA thought they were doing everything right but still voted to convict. Since the firm was destroyed, no one bothered to retry the case.
And I don't know why you say nothing substantially changed, Sarbanes-Oxley came out of that and accounting students are beat over the head with the lessons from Enron and what changed.
Plus, Arthur Andersen Consulting still exists as Accenture, but they were separate companies at that point. (Accenture was actually pretty psyched because they had nothing to do with Enron, but when AA accounting and AA Consulting broke up they had a deal where the more profitable business would send a cut of their profits to the other company. Since consulting is always more profitable, AA Consulting was looking for a way out of that deal when AA accounting imploded.)
I wonder how any of the big four are still in business, they've been caught in so many scandals so many times it's mind boggling. It's time they went the way of Arthur Andersen.
It's happened many times before. Anderson Consulting (http://en.wikipedia.org/wiki/Arthur_Andersen), then one of the "Big 5" accounting companies, suffered a "sentence first, verdict afterwords" execution when they were prosecuted for their putative crimes in the Enron debacle.
The reversal by the Supreme Court a few years later was cold comfort to the shell of the company that was left, the 85,000 people it once employed, the partners who lost the value of their holdings in the company, etc.
(And this hysteria lead to Sar-Box, which just happened to be the final nail in the coffin of the traditional IPO startup exit except for a very few massive successes.)
Anderson had been the accountant for Waste Management and Sunbeam. They'd been fined for those cases and they expected to be fined again for Enron. Cost of doing business. They didn't lose their customers because of those cases. They lost customers with Enron because they were convicted.
And they went out of business costing 10s of thousands of jobs.
Arthur Aderson and Anderson Consulting operated separately under Andersen Worldwide Société Coopérative since 1989. The companies formally separated in August of 2000, and the Accenture name was announced in January, 2001.
The Enron scandal broke in December, 2001.
Accenture's timing proved fortuitous, but coincidental.
What? Enron DID kill Arthur Anderson. They completely collapsed in mid 2002, right after Enron. They were also big players in the WorldCom collapse, so that contributed as well.
Well, EY started as part of Andressen (?) and was as such part of the Enron scandal. We shouldn't ignore the scandal of the century. EY so is a very reputable accounting firm. Unreputable would be the Metaverse headquartered shop FTX used.
I guess Arthur Andersen (Enron's accountants) is the only one that comes to mind. They were penally convicted and had to fold, if memory serves me right.
another minor nitpick-- Arthur Anderson had just recently spun off its consulting division as Accenture before the Enron scandal hit, not in reaction to it. It was a move that had been planned for some time. And I'm sure they thanked their lucky stars they completed the spin-off before Enron; Accenture was safely insulated from the fallout that absolutely killed Arthur Anderson.
With Enron, it's not even that the financials were obviously bad. It takes skill to see danger signs in audited accounts. Recall the fraud finished off their accounting firm, then one of the Big Five.
I was briefly at an Indian subsidiary of EY(those days, the Big 5 weren’t allowed to operate by themselves without partnering with a local chartered accounting firm) because only certain firms could do bank audits and I wanted the experience at one if the Big 5. KPMG was known for its entertainment industry accounts. I picked E&Y for manufacturing and I think I ended up with an international cement conglomerate account. The Big 5 clearly decided who gets what industry. They operate like a cartel. They also had consulting divisions. AA after Enron simply focused solely on consulting and IT.
They are all ‘special’ kinds of hell. Just different flavors. AA/Enron scandal was a big deal and was the only talk for days and days and days.
Slightly dated.. 2018: https://riskmagazine.nl/article/2018-03-19-how-the-big-five-...
[..] Andersen was responsible for checking the accounting of energy company Enron. The energy company went down with great noise because of shoddy accounting. Trouble came for Andersen as they had approved this accounting. After learning the Securities and Exchange Commission had begun an investigation of Enron’s accounting, orders were given at Andersen to destroy thousands of documents and e-mail messages. These illegal acts resulted in a conviction, which made it impossible to act as a public accountant for American stock exchange funds. Andersen decided to hand in its licenses before the SEC would withdraw them.[..]
[..] On appeal for the destruction of the files, Andersen was acquitted and there was no formal objection to the continuation of the audit practice. However, almost all employees had left due to the obscure practices. The practice had changed hands and the name would always be linked to this scandal. The few employees that stayed, worked on litigation arising from past audits, as well as pension issues and few other matters. Also there still is another firm which reminds us of the existence Andersen, namely Accenture. Accenture started off as the consultancy part of Andersen, which split off just in time, before the scandal happened.[..]
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