Accounting Issue: Arthur Andersen’

By: Paul Huynh and Sophia Truong

  • Arthur Andersen was charged with obstructing justice for shredding and erasing information from documents relating to the audit of Enron
  • Later, investigations also found that a memo relating to Enron’s loss was also altered
  • David Duncan, partner of Arthur Andersen, and Nancy Temple, Arthur Andersen’s lawyer, were major players in the Arthur Andersen scandal
    • David Duncan, who was the Andersen partner overseeing the Enron audit, pleaded guilty to the obstruction of justice, however he testified that an email from Nancy Temple, an Arthur Andersen lawyer, had influenced his decision to shred the documents
    • There was an email from Temple to Duncan to delete Andersen’s objection to the use of “non-recurring” by Enron on its loss
    • From when Arthur Andersen was first charged with obstruction of justice, the clients started leaving to find other accounting firms
    • On April 9, 2002, Duncan admitted to the shredding and erasing of the documents and pleaded guilty to obstruction of justice at court
    • Arthur Andersen was found guilty of obstruction of justice on the 15th of June, 2002 and the jury made their decision based on the destruction and altering of documents and also the omission of Duncan’s disagreement to the information on documents about Enron’s losses
    • On October 16, 2002, the Arthur Andersen firm was fined $500 000 and given five years probation
    • Arthur Andersen had stopped auditing public clients as of August 31, 2002
    • As of 2011, Arthur Andersen has not been dissolved and has not declared bankruptcy, however does not exist as an accounting entity anymore
    • The ownership of this firm has been left to four individual partners, who have created limited liability corporations
    • Impact on Accounting
      • New audit rules were made:
        • Statement on auditing standards 112
        • There was the enactment of Sarbanes – Oxley
          • Prohibits the knowing destruction of documents that relate to jurisdiction of any department or agency of the United States
      • The reputation of accounting is less reliable
      • Future outlook of accounting
        • More auditing rules will probably be made to decrease the possibility of manipulation of the books of companies, and to try to keep the accounting reputation from being more tarnished


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