Arthur Andersen Essay

In order to offer up superior- fiber explanation operate, Arthur Andersen (AA), a north accounting professor started a chore to offer work to clients promoting integrity and honest deposevass opinions tout ensemble over higher(prenominal) misfortunate-run profits. The associations quartet cornerstones was good service, quality inspects, salutary-managed staff, and profits for the regular. Their dodge was to focus on quality and high standards of audits rather than profits, a very prospering outline that extend to consistent festering over the age.Environmental, strategic, and organisational transposesIn intent the optimal architecture for a stipulation debauchedly, foodstuff conditions, engineering, and government regulation should be taken into consideration as these be important factors and determinants of schema. At the top is steadfasts external occupation purlieu which comp winds of technology, markets, and regulations all of which feeds dow n governance, organisational architecture, incentives and actions, and squiffy esteem.In order to focus on generating innovative business and cut cost AA adopted a refreshing strategy which snarlight-emitting diode evaluating its pardners on how much spick-and-span business they brought to the tighten. This newly adopted strategy do it more(prenominal)(prenominal) almost the numbers pool and qualification money. In order to lower the costs they in pass alongible partners to retire at the age of 56 years. With this strategy it conduct to the increased emphasis on revenue enhancement growth as well as expense reduction.There were new partners that go up to the top, Steve Samek, a prominent example of a partner that was commensurate to turn a $50,000 audit fee into a $3 m afflictedion audit engagement. Although some rose to the top, such a policy it take to fewerer experienced auditors and fewer partners overseeing audits and strait-lacedty language off on in accurate monetary statements for companies that overstated revenues imput fitted to improper deliver off of assets.A nonher prominent falsify at bottom the self-colored was when an Andersen engineer, Joseph Glickauf, demonstrated that computers were able to change bookkeeping records. This was mention to be a monumental change in the partnership and allowed the company to enter the consulting business in 1954. They were able to help their clients automate their accounting records and they were able to develop the largest technology practice of any accounting firm.The firms external environment was in any case ever-changing in 1930s as the federal government adopted new laws that required in the public eye(predicate) companies to submit their pecuniary statements to an independent auditor every year. Added regulations light-emitting diode increased revenues during this period and helped with the firms reputation and growth.In 1998 when Samek became the managing partner he formulated a new strategy the 2X feat evaluation system which intromit advice on how partners should empathize with clients. Along with devising organizational architecture changes he besides changed the refinement by making the cut down out edict a relaxed and adopted a new logo that incorporated a rising sun.Enrons Audit due to a few uncool partnersArthur Andersen began auditing Enrons books in 1986. Early 2001 Enron was considered the premier get-up-and-go company with a market value of equity of approximately $75 million and such a high market value meant that it was important to pay mingy attendance to the books of Enron since on that point is heavy opinion on the auditors opinion. Enrons engagement fees accounted for just a polished portion of AAs revenues but obturate to of the revenues came from a Huston part that was set up in Enrons Huston headquarters with the partner David Duncan.In evaluating Andersens claim that their enigmas on the Enron audit were due to a few bad partners I would disagree because of the close relationship that the two companies dual-lane along with a poorly developed organizational architecture. The Huston headquarters had over 150 Andersen nonrecreationals on site that seemingly knew or were advised of the accounting scandal but chose to rationalise it. Professional judgment and independence too was non dear as nonable in that location were so many lot in the Huston office with their fingers in the Enron pie if there was an auditor who did not want sign off on an audit they would be fired.This was not the only crisis that AA was involved in which made outsiders questioned their practices and overlook their claim. There were lawsuits a get intost Arthur Andersen. front to the Enron scandal AA had settled a contest with the Securities and Exchange Commission paying more than $7 million for accounting and auditing build of Waste Management potful. Additionally, the SEC sued an Andersen lure par tner on the Sunbeam Corporation audit.These crises along with their claim that their hassle with the Enron audit was due to a few bad partners was me cuss the result of an fraudulent organizational structure along with policies and practices that the firm implemented. The unsound organizational structure of Arthur Andersen changed the pauperism of employees within the firm and changes within the firm over the years one of which was the compensation of partners did not allow for integrity when work was universe with for these public companies.What could involve been done differently?The organizational architecture of Arthur Andersen seemed to piddle gone a different pass from what it was intended for and much of the success that Arthur Andersen was short term and partner based. Policies that were implemented led partners to engage in mischievous acts to gain more business. Slowly their policies and practices became more around money rather than quality audits exploitation t he right protocols.Other than management who were involved in mischievous acts I would reanimate or polish existing polices to adjust it to their initial strategy which was to provide quality accounting services to clients and promote integrity and sound audit opinions over higher short-run profits. It is beakd that an ill designed organizational architecture can result in poor performance and company failure and AA made actual changes that changes their business environment and strategy which led to their collapse. Their flawed organizational architecture made it problematical for new talent ( new(prenominal) than partners who were all about numbers) to be discovered. It became more about making your numbers so I would likewise design a system that allowed for inefficient management to be replaced by new talent who are not only about creating value for the firm but in any case to fill in gaps that whitethorn be in architecture.Andersen and multitask pattern operator theory Incentive conflicts existed at Arthur Andersen. At AA there was management and partners that acted in their own self interest through maximizing their own utility at the expense of the other partners that was vested in the company. This in any case seemed to be a recurring problem that affected the company because on septette-fold occasions a partner was impeach acting in their own self interest. Conflict of interest with alters the principal agent relationship also played a big part at the rise of the Enron scandal because a widespread engage among investors, regulators, and the public rose which whitethorn catch motivated many AA professional on the Enron engagement to sign off on questionable accounting practices. Risky practices to get out short term benefits paved also paved the way for dishonesty and fraud. social intercourse amidst hard and soft elements of the firms corporate culture solid and soft elements improve known as the 7S Model is a computer simulation of organizational effectiveness was developed at McKinsey & Co. Consulting firm in the 1980s. It proposes that there are seven factors within a firm that inescapably to be aligned and reinforced in order to be successful. Hard elements include structure, strategy and systems and the soft elements include shared out values, skills, style and staff.Hard elements are influenced and determine by management. It is the formal architecture and primitive determinant of a firms value. Soft elements on the other give-up the ghost are those intangible elements that are influenced by corporate culture. AA for example organizational architecture, Samek try to change the softer elements of AAs corporate culture. For example, the dress reckon was relaxed, the wooden doors at AAs office entrances were removed, and the firm adopted a new corporate logo, the rising sun. This gives the company a sense of direction and motivation and serves as a means for communication and reinforcing firm goals. According to this model it is required that there is a balance amongst the hard and soft elements. As it relates to AA there was no good balance between both elements. At the pinnacle of this model are shared values a soft element which was a embarrassed element that made the model hard to achieve at AA. There was no proper defined corporate culture at AA so there was nix to link how people exit endure in the firm or to be get to the architecture of the firm up. The concept of shared values should starts at highest level (i.e. partners of AA) and they should teach these values to their senior management who must(prenominal) then continue the process till it reaches archetypal year hires. However, if un ethical appearance starts at the highest level the companies culture will be damaged before it reaches first year hires and the will adopt the wrong behaviorIn addition to changing Andersens organizational architecture, Samek tried to change the softer elements of AAs corp orate culture. For example, the dress code was relaxed, the wooden doors at AAs office entrances were removed, and the firm adopted a new corporate logo, the rising sun.Were actions at Arthur Andersen comical?There may have been accepted environmental factors (i.e. intense competition), opportunities, or want of regulations and monitoring that may motivate other companies to partake in the same(p) unethical decisions as AA. There may also be no telling whether or not other accounting companies practiced unethical decisions because they may be able to better conceal these unethical practices so it goes unnoticed. This situation was not unique to Arthur Andersen. The scratchiness of the scandal made it hard for AA to funk back whilst other companies may have been able to resolve issues dealing with unethical behavior to slighten the severity and mold it seem miniscule to the public.There is beyond no doubt that after the fall of AA and Enron that top accounting companies start ed to ensure that their practices and organizational structure was sound to prevent the same crises such as that of AA from happening to their company. As a top partner of some other accounting firm during Andersens decease I would most review practices of the firm, and closely follow articles and regulations released by the SEC, GAAP, and other restrictive agencies regarding auditing procedures. Lastly, I would also ensure that the proper protocols are followed regarding existing, new, or prior engagements (i.e. practicing independence, professional judgment or skepticism).SEC proposed regulations in 2000 to limit consulting work by accounting firmsLegislators were acting in the publics interest as they may have noticed that the proposed regulation was flawed and may have stirred up competition in the securities market. The proposal was under testing as it was noted to be fatally flawed and existing regulations passed were challenged as it was noted that a more active busines s office necessary to be taken in making changes in the measurement and breedage system in support of better information to foster better decisions making by corporations, investors and the government.With the added pressure and intense lobbying by the Big Five accounting firms they may have not seen a problem in the company providing both services or felt the regulation needed to be refined.Enforcing ethical standards because of Andersen scandalWhilst it may not have been the main solid ground for the AICPA to release a set of standards for the conduct of CPAs, the Arthur Andersen scandal certainly gave rise to the culture of the Code of Professional Conduct. When scandals pertaining to audit of financial statements occur the first person to unsaved is the firm of the CPA on the audit engagement. The AA scandal has definitely heightened the publics awareness of the need for increased attention to all ethical business practices by professionals especially CPA who investors heav ily rely on for their opinion.The AICPA is only to be diabolic for not setting higher ethical standards for their members and making it a priority. They do not have control over unethical conduct of members but they can give and clearly state the ramifications. It is important to note that the firm that hires the CPA to perform services should also instill their own code of conduct.Appointment of a new superintendence boardRather than continuing to be self regulated after the scandal, the troth of an wariness board was necessary as they provide independent oversight of public accounting firms providing audit services. They register auditors, define, inspect, and inflict specific processes and procedures for compliance of audits as well as for quality control.Auditors of public accounting companies are inspected by the PCAOB not less than once every 3 years and except any deficiencies, the inspection report becomes public information after issue of an appeal period. The PCAOB further has authority to investigate and discipline violations of the Sarbanes Oxley Act, board rules, securities laws and professional standards.This oversight board will provides insight on all public accounting firms so investors are confident in relying on their opinions about a particular firms financial statement. The Sarbanes Oxley Act allowed more eyes from the outside to look in on the practices of these accounting firms.