The collapse of Arthur Andersen was among the most profound events in the history of American business. Arthur Andersen LLP is one of the Big Five accounting firms, grossing over $9 billion in sales during 2001. The company, with 85,000 employees working in 84 countries, audits the financial statements of most publicly traded companies in the U.S. .
At Arthur Andersen there were a great number of critical problems confronting the company.
1. David Duncan, one of the partners responsible for Enron's auditing, was inappropriately misusing the accounting treatment of SPEs.
2. Due to globalization, declining fees, increasing competitive pressures to attract and retain clients caused the auditors to relax or alter their interpretation of accounting principles. .
3. Changing regulatory environment- Liability exposure was assigned lower priority on the list of concerns for accountants. .
4. Andersen was the ones to establish the Professional Standards Group- Andersen was the only one to allow local partners to ignore the company experts. .
5. Resentment on both sides was elevated as consulting became more profitable and accountants felt increasing pressure to open doors to their clients for consulting services. .
The group decided that the first problem with Duncan could have been prevented before a disaster happened with Enron. Carl Bass, another partner of Andersen, repeatedly raised questions about Enron accounting. Our group is not sure if Bass went to the Professional Standards Group immediately after he raised his first questions about Duncan's methods. If Bass did go to the Group immediately after his findings, then Bass did the right thing and tried to prevent a disaster. If he did not report Duncan right away to the Group, then Bass is also responsible for what happened to Enron. Finally, Duncan overpowered Bass and the Group. Duncan was able to exercise his power to overrule the Group and rejected their conclusions.