ARTHUR ANDERSEN AUDITORS ROLE

Arthur Andersen and Enron - two names that will forever

live in infamy because of the events leading up to and including
the debacle of December 2001, when Enron filled for bankruptcy.
These two giants in the utility and accounting industries, and
known throughout the world, took advantage of not only
investors, but also the government and public as a whole, just so
that those individuals involved could illegally increase their
personal wealth. How could the backlash from the actions of the
management of these two organizations have a positive influence
in the accounting industry as a whole? The fallout from Enrons
bankruptcy and the SEC investigation that followed resulted in
many changes to the industry to make standards tougher,
penalties harder, and the accounting industry more reliable. At
first glance, these improvements just seem like they are making
more work for the many honest accountants in the industry, who
are already doing the right things. However, this thesis will show
how these changes actually are positive for the industry. In order
to do this safety measures that were in place at the time of the
debacle will be shown, the actual events leading up to the
downfall of Enron and Arthur Andersen will be discussed, the
changes that have occurred since the fall through the present day
will be given, the changes that appear to be on the horizon for the
accounting industry will be shown, and finally how all of this will
impact the accounting industry as a whole in a positive fashion
will be made clear.
Safety Measures in place Prior to the events.

Prior to the fall of Enron and their accountants, Arthur Andersen, there were many
different types of safety measures in place to help protect the investors and the public as a
whole. These safety measures included Generally Accepted Accounting Principles (GAAP),
Generally Accepted Auditing Standards (GAAS), Statements on Auditing Standards (SAS),
and all professional ethics. The use of GAAP by accountants is standard protocol. An
accountant follows these principles as a matter of daily routine. According to Several
accounting texts, GAAP is identified as a dynamic set of both broad and specific guidelines
that companies should follow when measuring and reporting the information in their financial
statements.
During yearly audits performed by external, independent auditors, checks are
performed to make sure that a business is following GAAP consistently. If they are not, then
the business must show why they are not, and present rationale to demonstrate that what they
are doing is both ethical and appropriate in their specific situation. This leaves the field open
to interpretations of what is appropriate for different situations. Since interpretations are
quite subjective, the American Institute of Certified Public Accountants (AICPA), added the
stipulation that the treatment must also be applied consistently over time. These rules are in
place to make financial statements as accurate and reliable as possible. Enron took these
rules and circumvented them to allow certain individuals within the company to make money
from the increased investments from stockholders. They did this by bolstering their balance
sheet with inflated asset values, and dispersing their liabilities to subsidiaries that they just
didnt consolidate. Meaning that Enron didnt include these companies in their financial
statement accounts at the end of their fiscal years, causing massive misstatements. Since
these partnerships were, in most cases, wholly owned subsidiaries or partnerships, they
should have been shown on the consolidated financial statements with Enron. When Enron
declared bankruptcy they had $13.1 billion in debt on Enrons books, $18.1 billion on their
subsidiaries books, and an estimated $20 billion more off the balance sheets (Zellner).
While GAAP guidelines relate to how financial statements are presented, GAAS, on
the other hand, are standards set down specifically for the audit cycle of a company. It tells
auditors what tests they should do, and to what extent this testing is to be done, and what

level is acceptable in the audit (Imhoff) Arthur Andersen had a responsibility to the investors
and to the public interest under GAAS. Auditors, according to GAAS, are to remain
independent in both fact and appearance. Meaning that even if an auditor appears to have a
connection with their client, even though they may not have, they should drop the audit
immediately. Anderson took a very active role in Enrons business through both auditing and
consulting. This should have been enough to make anyone question Andersons
independence. They did not execute their duties independently because of the amount of
revenue that Enron was providing them, not only in audit fees, but also in consulting fees.
In 2000, Enron paid Andersen $52 million, including $27 million for consulting services
(Weil). This amount was enough to make Enron Andersens second largest account in 2000.
SAS constitute the third important safety measure. These statements on auditing
standards are produced to address current issues in the business of auditing. The American
Institute of Certified Public Accountants (AICPA) sets down these rules. The one that played
a predominant role in this incident is SAS 82. SAS 82 was issued in 1997, and it requires
auditors to ascertain managements understanding of the risk of fraud (Jakubowski). This
statement also included the duty to find out if any of the management knew of any fraud
being committed against the company, and added new fraud terminology to the representation
letter produced by management. This SAS was the first to clearly state that auditors had any
responsibility to look for fraud. Up until 1997 it was expected that an auditor would report
fraud if they happened upon it, but they had no responsibility to actively look for it. This one
SAS along with all the others were supposed to protect the public interest. However, in lieu
of the lucrative fees being collected by Andersen from Enron these were also overlooked. In
spite of all of these safety measures the wrongdoings at Enron went undetected for a long
period of time. The major problem was that of collusion. GAAP and GAAS can not prevent
fraud when people work in collusion to perpetrate that fraud. Therefore, when events like
these transpire, changes are required in an attempt to prevent similar occurrences.
History (Chronology of Events)
The events that led up to the bankruptcy filing in December of 2001, started long
before anyone began to suspect fraud at Enron. Andersens role in the Enron debacle should

have been anticipated. Andersen had two major audit failures just a few years apart and just a
short time before Enron filed bankruptcy. In 1996, Waste Managements audit reports from
Andersen were materially false and misleading resulting in an inflation of income by over $1
billion dollars between 1992 and 1996. This information came out in an SEC investigation,
and led to Waste Management selling out to another company. In 1997 Sunbeam was found
by the SEC to be using accounting tricks to create false sales and profits, Andersen signed off
on these financial statements even after a partner flagged them. Sunbeam would later file for
bankruptcy (Weber).
These two major audit failures should have put Andersen on their guard against
another client failure, however the worst was yet to come. Internal memos at Andersen
showed that there were conflicts between the auditors and the audit committee of Enron.
Also included in these memos are several e-mails expressing concerns: about accounting
practices used by Enron. However, the leading partner on the audit, David B. Duncan,
overturned these concerns. Also, there is proof that Duncans team wrote memos
fraudulently stating that the professional standards group approved of the accounting
practices of Enron that hid debts and pumped up earnings (McNamee). However, because of
the relationship between audit and non-audit fees, Andersens independence was probably
flawed (Frankel). During the fallout of Enrons bankruptcy and Andersens role in it,
Andersen began to run an ad that Andersen would do what was right. In doing this they were
trying to rebuild the consumer confidence in their accounting firm. While Andersen was
attempting to pick up the pieces of their business, Paul Volcker, former Federal Reserve
Chairman, presented a plan for a restructuring of Andersen so that they would have a chance
of surviving this incident. Andersen did eventually agree to the restructuring, but it was too
late to save the firm as a whole (Alexander). Anderson still exists as a company, although
their only reason for doing so is to complete all the litigation against the firm. They are no
longer auditing or consulting. Anderson was the major accounting influence in this incident,
however they were not the main player.
Enrons role started when they emerged as a competing force within their industry.
Enron became more and more arrogant as time passed. They had a banner in the lobby of

their headquarters, which read, the worlds leading company. Many believe that it was this
arrogance on the part of the management that led to the escalation of the fraud that followed
(McLean).

Exhibit 1

Enrons strategy was to have a balance sheet with many intellectual assets, like
patents and trademarks, and that actual assets were bad and should be immaterial when
compared to the intangibles. Most of the debts and tangible assets of the company were on
the balance sheets of partnerships that were run by high-ranking officials within the
corporation (Zellner). With this kind of strategy for business the company quickly began to
falter. Knowing that Enron needed help, a competitor, Dynergy, offered to buy them out for
$10 billion. Then, on October 16, 2001 Kenneth Lay, ex-CEO of Enron, told the public that
Enron would have to decrease shareholders equity by $1.2 billion. This announcement, along
with the November 19, 2001 announcement of a $700 million charge to buy out a note
payable, caused Dynergy to bail out of the deal to buy Enron on November 28, 2001. This
proved to be the defining moment for Enron -- that would cause Enrons management to
realize that Enron had no hope of survival. Finally on December 2, 2001 Enron filed for
bankruptcy (Zellner). In the end Enron fared no better than other companies that perpetrate

this kind of activity. This description is what really happened, but how these events were
displayed to the public is a different story.
In early 2001 Jim Chanos, the person who runs Kynikos Associates, was the first to
say what everyone can now see -- Enron had absolutely no way to earn money. The parent
company had become nothing but a hedging entity for all of its subsidiaries and affiliates.
The operating margin for Enron was way down in 2001, at 2%, from its level in 2000, of 5%
(McLean). This kind of a decrease in one year is unheard of in the utilities industry. Chanos
went on to point out how Enron was still aggressively selling stock, even though management
understood that there was very little to back up the shares that they were selling. Chanos was
also the first person to take notice of and publicly identify the partnerships where Enron was
hiding some of its debt (McLean). Enrons CFO Andrew Fastow ran these partnerships,
which would later become known as the LJM partnerships. These partnerships were recorded
as related parties, but were never consolidated so that the debt never showed up on Enrons
financial statements, as it would have if statements were prepared according to GAAP
(McLean). Thanks to Jim Chanos the public was made aware of what was going on, and
actions have been taken to implement changes to prevent a similar instance in the future.
Changes
Since these events have taken place, see exhibit 1, many changes have come about
within the accounting industry. Some of these changes originated with the AICPA and other
accounting groups. Still other changes have come from the government and government
agencies or have just naturally evolved with time.
The AICPA made several new Statements on Auditing Standards in response to the
Enron events. The three that appear to be most closely linked to the Enron and Andersen
debacle are SAS 96, SAS 98, and SAS 99. SAS 96 became effective January of 2002 and
dealt with the record retention policies of accounting firms. In SAS 96 the requirements of
SAS 41, which was the first SAS to address record retention, were reaffirmed. Also several
new regulations were added. SAS 96 contains a list of factors that auditors should consider
when attempting to determine the nature and extent of documentation for a particular audit
area and procedure. It also requires auditors to document all decisions or judgments that are

of a significant degree (SAS 96). For example, a decision of a significant degree would be an
auditor approving a client not using GAAP for a portion of their financial statements. These
changes appear to be a direct result of the paper shredding that went on at Arthur Andersen
immediately after the Enron bankruptcy. SAS 98 makes a lot of revisions and amendments to
previous statements. These changes include changes to GAAS, changes to the relationship
between GAAS and quality control standards, and audit risk and materiality concepts in
audits (SAS 98). All of these changes would appear to be related to problems that were
discovered in the Andersen audit of Enron. SAS 99 outlines what fraud is, reaffirms the
auditors responsibility to look for fraud, and reaffirms the necessity to gather all information
for an audit (SAS 99). These changes appear to be in connection to the fact that Anderson
did not find any fraud in Enrons books, where fraud existed. These changes all came from
within the AICPA.
Many accounting firms and independent CPAs reacted to these events and
implemented changes in procedure voluntarily. The biggest change that accounting firms
made was a move made by the four remaining members of the big five, KPMG, Ernst and
Young, Deloitte Touche Tohmatsu, and PricewaterhouseCoopers. These four companies
decided to break all ties with Andersen in an attempt to avoid being dragged down with the
selling controversy surrounding the Enron scandal. This distancing was also due to the major
changes mandated to Andersen as a way to get back on their feet after the scandal broke, and
the other firms were afraid that these changes would be forced on them as well (Schroeder).
This scandal also caused many major companies who had used Andersen as their
auditor in past years to hire auditors to go over past years audits double checking all of the
audit work that could be double checked. This cloud of doubt also extended to companies
that Andersen gave qualified audit reports or consulting advice to. PSC Inc. is a software
manufacturer with increasing financial problems. When Andersen performed their last audit
on the company they raised many questions about the companys ability to continue to exist
as a viable entity (Elstein). Leaders of many blue-chip firms were very concerned by this
scandal, and they met to discuss plans for future changes. At the end of these meetings, it
was decided that a new oversight committee should be proposed and that these companies

were the people to propose such an idea. This idea would set up a committee sponsored
completely by the SEC. The members of this committee were to be completely independent
of the public accounting firms (Bryan-Low). The oversight committee mentioned was never
instated because the current public oversight committee dissolved itself only a short time
after this proposal was made, as they felt they had let down the community and the industry.
All other changes that would be to come into the accounting industry would have to be
brought in by the government or other outside sources, because the accounting industry felt
that they had changed more than enough to forestall a reoccurrence of the Enron/Arthur
Anderson debacle.
The government reacted aggressively when they became aware of the Enron scandal,
and a flurry of legislation and proposals emanated from Congress and the SEC about how
best to deal with this situation. President Bush even announced one post-Enron plan. This
plan was to make disclosures in financial statements more informative and in the
managements letter of representation. This plan would also include higher levels of financial
responsibility for CEOs and accountants. Bushs goal was to be tough, but not to put an
undue burden upon the honest accountants in the industry (Schlesinger).
By far the biggest change brought about is the Sarbanes-Oxley Act (Ditman). The
Sarbanes-Oxley Act requires companies to reevaluate its internal audit procedures and make
sure that everything is running up to or exceeding the expectations of the auditors. It also
requires higher level employees, like the CEO and CFO to have an understanding of the
workings of the companies that they head and to affirm the fact that they dont know of any
fraud being committed by the company. Sarbanes-Oxley also brought with it new
requirements for disclosures. These requirements included reporting of transactions called
reportable transactions. These transactions are broken down into several categories, which
impact every aspect of a business. One of these categories is listed transactions-which are by
far the worst. They are transactions that are actually written out in a list, each one pertaining
to one specific situation. Another is transactions with a book-to-tax difference of more than
ten million dollars. There are several others, however these two will have the greatest effect.
Accompanying these requirements are strict penalties if these transactions are not reported

and discovered later. This act will mean significant additional work for accountants over the
next several years.
The GAO (Government Accounting Office), held several meetings revolving around
this scandal and the resulting fallout. One such meeting had David Walker, Comptroller of
the United States, discussing his beliefs as to where serious problems existed. The four major
areas outlined in his discussion were corporate governance, independent audit of financial
statements, oversight of the accounting profession, and accounting and financial reporting
issues (GAO-02-483T). This discussion sparked the bringing several GAO accountants and
heads of business into Congress committees for advice and to get feedback for proposed
ideas. The other large meeting was held to discuss the Sarbanes-Oxley act that was put
before Congress. Paul Sarbanes, Chairman of the Committee on Banking, Housing, and
Urban Affairs presented the new act to the GAO, in an attempt to allow the members to see
the necessity of the Sarbanes-Oxley act, as well as support it at the congressional level
(GAO-02-742R). These were the two main changes emanating from the Government
Accounting Office.
Another big change that came from the Enron bankruptcy filing was a new push to
separate auditing services from consulting services. Immediately after it became clear that
Andersen had no chance for survival Andersens management decided to try one last thing to
raise some money to settle the lawsuits filed against them. This last effort was to sell off their
consulting service. Several years before the Enron/Andersen debacle, Andersons consulting
arm had forcefully split from the company because of a lack of distribution of income to
partners from the consulting arm of the business (Toffler). Concordantly, the consulting arm
was relatively new to the company. The buyer of the consulting service would be KPMG,
one of the now big four accounting firms, and they would pay more than $250 million for this
consulting arm (Frank).
For many years the SEC Chairman, then Arthur Levitt Jr., had been calling for the
separation of auditing and consulting services within one company. However big firms like
Andersen would apply their proverbial weight to attempt to show that consulting did not
interfere with an auditors independence. Since the major concern of Andersens role in the

controversy centers on their independence, and because of the large monetary consulting fees
being paid to them by Enron, the push has been started anew by Paul Volcker the former
Federal Reserve Chairman. Realistically, few think that the big firms will be able to dissuade
the SEC from actually implementing such a rule (Brown).

Many companies who use

auditors believe that this is not the answer, because of the fact that it will cause them to hire
one firm to do auditing work, and another to do non-audit work like taxes and other filings
(Solomon). In an attempt to not get damaged by any imminent government action, many
business-including Disney and Apple Computer Inc-have already begun splitting their audit
and non-audit work between different firms. Harvey Pitt, current SEC Chairman, does not
believe that such a drastic change is called for, and instead is pushing for not allowing
external auditors to perform internal audits for companies, and that all other non-audit work
be approved by the SEC and board audit committees before the work is done (Byrnes). This
controversy has long outlasted both companies involved in the actual debacle, and will
continue until specific actions are taken.
These events have also allowed the world of academia to make many influential
changes to curriculums, without adding or dropping classes. These changes include a new
emphasis on accounting ethics and on special purpose entities. Ethics have always played an
important role in the accounting industry. However, in recent years ethics education within
accounting classes had fallen by the wayside as audit failures continue to stack up, and
accountants are viewed as at least partially to blame. Several professors of accounting at
several different colleges across the United States have redoubled their efforts to include
ethics in their teachings at every level, from principles to advanced. Special purpose entities
are not something that have been highly discussed in many accounting classes up to this point
in time. However, in light of the tax shelter abuse perpetrated by Enron, many professors are
now finding it necessary to begin to explain these entities and their uses to their students.
The goals of all the curriculum changes are to make accounting graduates better prepared to
confront ethical issues so that events such as the Enron/Anderson debacle will not be repeated
in the future (Wei).

The effects of the Enron/Anderson debacle can even be felt at an international level as
more precautionary measures are taken. In Singapore, there has been a push to have banks
and other lenders rotate their auditors. The controlling government agency, Monetary
Authority of Singapore (MAS), is attempting to make it necessary for all listed companies to
rotate their auditors every five years. The executive director of MAS, Ravi Menon, said
with an extended relationship, auditor firms run the risk of getting too close to the
management of the banks they audit, and begin to identify too closely with the banks
practices and culture (Day). It is this closeness that caused Andersen and Enron to work in
collusion to escalate the fraud that Enrons management had perpetrated. Several other
countries where the remaining big four practice are now also looking into such restrictions
and changes to protect their citizens. The effects of the debacle are not merely restricted to
the United States; indeed they are felt throughout the business world.
Positive Nature of the Changes
The changes that have been made, are being made, and will be made, all will have a
positive impact on the accounting industry. These changes, some implemented by accounting
companies and agencies, some by the government and governmental agencies, and others by
outside sources, will require more work from accountants, but will in the long run improve
many factors within the industry.
The changes implemented by accounting companies and different accounting agencies
will affect only the companies making the changes and the American companies, and
subsidiaries. The three new SAS presented earlier will help to expose fraud and deception
where it exists in a company. They not only make the auditor work harder to demonstrate
more fully that no material misrepresentation exists, but also require the company to take a
more proactive role in their audits and accounting. These new SASs will help to restore some
of the publics confidence in auditors and businesses.
The move by many businesses to hire new auditors to recheck their past audits, after
Andersens contributing role had been exposed as aiding and abetting the fraud that existed at
Enron, was a wise decision. This allows the public to see that companies do care that they do
not misrepresent their position to the public. It also creates more work for the accounting

industry, which creates job security for accountants. These changes allow companies to show
that even though their auditors were corrupt; the company itself was fine, thereby restoring
public confidence in publicly traded companies.
The governmental changes had the farthest-reaching effect of all the changes that
would result from the Enron/Anderson debacle. The plan that President Bush announced
would make the penalties stiffer and would make the culpable, high-level management
employees responsible for the workings of the company, something not yet established in
American law. This gives the management of a company a new impetus to make sure that
everything is absolutely correct. Which in turn means that financial statements should be
more reliable than ever before.
The Sarbanes-Oxley Act will drastically improve the accounting industry in two
ways. First it creates a lot more work for many of the public companies. This additional
work means more job opportunities for many accountants and job opportunity means freedom
to tell a client when they are wrong, which in turn makes audits more reliable. The second
way is that it requires tougher restrictions on internal audits and in judging how well the
internal audit is conducted. If the internal audit is functioning effectively, it cuts down on the
volume of work that the auditors have to do, thus making it easier for auditors to do audits.
As well as increasing reliability on the internal audit, these changes increase the reliability on
the financial statements produced by the companies as well. This increase in reliability will
in turn increase the publics confidence in the accounting industry.
The other changes will have varied levels of effect on the accounting industry, but will
all be positive in nature. The separation of auditing and consulting will move the accounting
industry forward a great distance toward increased credibility. It will decrease the occurrence
of non-independence by auditors. At the same time, this will allow companies to reap the
benefits of having both auditors and consultants. The accounting industry should again
flourish, and businesses will see that once the consulting firm gets used to working with a
company they will work just as well as the company that they use for audits. This should
provide a means of checks and balances.

The changes in academia will produce a new kind of accountant. The new
accountants will have more training in ethics. This training in ethics will increase the
publics confidence in accountants and the accountants confidence in each other. Also,
accountants will be better prepared to deal with special-purpose entities which will allow
more meaningful and correct accounting procedures to prevail where bad or antiquated
procedures may have been used in the past. This will improve the reliability and usefulness
of financial statements as well as their reliability.
All of the positive changes center on revitalizing the publics ability to trust
accountants as well as the companies in which they invest. Once these bonds of trust have
been repaired, after being so badly damaged as a result of the Enron/Andersen debacle, the
economic world can move forward with confidence and integrity in a new a positive direction
for all people involved.
Conclusion
Executives at Arthur Andersen and Enron did not set out to have a positive impact on
the accounting industry or any industry. They set out to make as much money for themselves
as quickly as possible. They were willing to do whatever it took to make that money. These
thoughtless acts and greed led both companies to an eventual downfall in bankruptcy.
However, the accounting industry reacted by introducing changes that would, in the long run,
improve itself and the economy in which it exists. The changes that are a response to the
Andersen/Enron debacle may be coming to an end. We are probably seeing the last laws,
pronouncements, and statements that are a direct result of these actions. Still, the changes
that have occurred leave the accounting industry and the economy stronger. Will the industry
ever be perfect? Probably not, but accountants and the world must continue to strive to make
it as functional as it can be. Only by this continued striving can the industry be good enough
to function effectively and even thrive.

Works Cited
Alexander, Delroy. Anderson Partners to Agree to Restructuring Plan Thursday. Chicago
Tribune. March 27, 2002.
American Institute of Certified Public Accountants. Statement on Auditing Standards. New
York, NY. No. 96. January 2002.
American Institute of Certified Public Accountants. Statement on Auditing Standards. New
York, NY. No. 98. June 2002.
American Institute of Certified Public Accountants. Statement on Auditing Standards. New
York, NY. No. 99. November 2002.
Brown, Ken and Jonathan Weil. Questioning the Books: How Andersons Embrace of
Consulting Altered the Culture of the Auditing Firm. The Wall Street Journal. March
12, 2002.
Bryan-Low, Cassell and Michael Schroeder. Audit Cleanup: New Oversight is Proposed By
Blue-Chip Firms. The Wall Street Journal. March 20, 2002.
Byrnes, Nanett. Auditing Here, Consulting Over There. Business Week April 8, 2002: 32.
Davis, Tim. Accountant Caterpillar Inc. Interview. July 18, 2003.
Day, Phillip. In Singapore, a Glimpse of the World Post-Enron --- Regulators Want Lenders,
And Maybe Others Too, To Rotate Their Auditors. The Wall Street Journal. March
14, 2002.
Ditman, Dana. Accountant Caterpillar Inc. Interview. July 22, 2003.
Elstein, Aaron. Ultimate Insult: a Nay from Anderson --- Audit Firm Raised Questions on
Viability of Some Clients, Which May Outlast the Firm.
Frank, Robert and Ken Brown. Anderson: Just a Shadow of Its Former Self --- Arthur
Anderson Could Sell Off Consulting Arm. The Wall Street Journal. April 30, 2002.
Frankel, Richard M., Marilyn F. Johnson, and Karen K. Nelson. The Relation Between
Auditors' Fees for Nonaudit Services and Earnings Management. The Accounting
Review. Vol. 77. 2002.

Government Accounting Office. Accounting Profession: Oversight, Auditor Independence,

and Financial Reporting Issues. Reportnum: GAO-02-742R. May 3, 2002.

Government Accounting Office. Protecting the Public Interest: Selected Governance,

Regulatory Oversight, Auditing, Accounting, and Financial Reporting Issues.
Reprtnum: GAO-02-483T. March 5, 2002.
Imhoff, Jr., Eugene A. Accounting Quality, Auditing, and Corporate
Governance. Accounting Horizons. Vol. 17. 2003.
Jakubowski, Stephen T. SAS 82s Effects on Fraud Discovery. CPA Journal February 2002:
80.
McLean, Bethany. Why Enron Went Bust. Fortune December 24, 2001: 59.
McNamee, Mike. Out of Control at Arthur Anderson. Business Week April 8, 2002: 32.
Schlesinger, Jacob M. and Michael Schroeder. Bush to Unveil Post-Enron for
Disclosures. The Wall Street Journal. March 7, 2002.
Schroeder, Michael and Greg Hitt. Questioning the Books: Big Accounting Firms Break Ties
With Anderson to Resist Changes. The Wall Street Journal. March 4, 2002.
Solomon, Deborah. After Enron, a Push to Limit Accountants toAccounting. The Wall
Street Journal. January 25, 2002.
Toffler, Barbara Ley. Final Accounting. Broadway Books. 2003.
Weber, Joseph. Arthur Anderson: How Bad Will it Get? Business Week December 24, 2001:
30.
Wei, Lingling. Enron Collapse Lets Academics Discuss Ethics --- Accounting Professors
Focus on New Perceptions of a Noble Profession. The Wall Street Journal.
February 13, 2002.
Weil, Jonathan. Audits of Arthur Anderson Become Further Focus Of Investigation by
SEC. The Wall Street Journal. November 30, 2001.
Zellner, Wendy. The Fall of Enron. Business Week December 17, 2001: 30.

Works Referenced
Alexander, Delroy. Former Federal Reserve Chairman Presents Plan for Arthur Andersons
Future. Chicago Tribune. March 24, 2002.
Brody, Richard G., D. Jordan Lowe, and Kurt Pany. Could $51 Million be Immaterial when
Enron Reports Income of $105 Million? Accounting Horizons. Vol. 17 - no. 2. 2003.
Burns, Judith. SECs Herdman Urges Accounting Firms to Improve Auditing, Citing Enrons
Fall. The Wall Street Journal. Dec. 7, 2001.
Coy, Peter. Enron: Running on Empty. Business Week December 10, 2001: 80.
Grace, H. Stephen PhD. Audit Committees Under the Microscope. CPA Journal January
2002: 8
Grumet, Louis. Enron Hits Close to Home. CPA Journal March 2002: 9
Housworth, Gordon. Enron & Arthur Anderson: to comply is not enough. CriticalEYE.
August 2002: 20-25. [Electronic Format].
Illiano, Gary CPA. Dont Rush to Judgment. CPA Journal January 2002: 10
Kuttner, Robert. The Lesson of Enron: Regulation Isnt a Dirty Word. Business
Week December 24, 2001: 24.
Marchini, Deborah (Byline). Before Hours [Television Program]. January 4, 2002. Cable
News Network.
McNamee, Mike and Harvy Pitt. If You Violate the Law You Will Pay for it. Business
Week December 24, 2001: 33.
McRoberts, Flynn and Cam Simpson. Former Enron Executives Suicide Note Reveals Little
about Company Collapse. Chicago Tribune. April 12, 2002.
OConnell, Vanessa. Arthur Anderson Confronts Its Enron Role. The Wall Street Journal.
January 17, 2002.
Raghunandan, K., William J. Read, and J. Scott Whisenanat. Initial Evidence on the
Association between Nonaudit Fees and Restated Financial Statements. Accounting
Horizons. Vol. 17 - No. 3. 2003.
Sack, Robert J. CPA. No Time for Speculations. CPA Journal January 2002: 10
Schaffler, Rhonda (Byline). Market Call [Television Program] January 11, 2002. Cable
News Network.

Schroeder, Michael. Senate Panel Seeks Sweeping Change for Auditors. The Wall Street
Journal. March 7, 2002.
Shwartz, Nelson D. Enron Fallout: Wide But Not Deep. Fortune December 24, 2001: 71.
Torriero, E. A. and Robert Manor. Government has More at Stake in Anderson
Trial. Chicago Tribune. March 3, 2002.
Turner, Lynn. Rethinking Audit Regulation. CPA Journal January 2002: 10
World comINVOLVEMENT IN THE SCANDAL.
Ather Anderson LLP
On June 15 2001 Anderson was convicted of obstruction of justice for
shreddingdocuments related to its audit of Enron resulting in the Enron
scandal. This
indictmentp u t a s p o t l i g h t o n i t s f a u l t y a u d i t s o f o t h e r c o m p
a n i e s m o s t n o t a b l y s u n b e a m a n d WorldCom. The subsequent
bankruptcy of WorldCom then led to a series of other
casesa g a i n s t A n d e r s o n . A r t h u r A n d e r s e n w a s a c c u s e d o f f a i l i n g t
o protect investors. Thea c c o u n t i n g f i r m i s s u e d a n a u d i t o p i n
i o n o n W o r l d C o m w i t h a n i n t e n d t o d e c e i v e , manipulate or
defraud
2
investors To date Anderson has not been formally dissolved nor has it declared
bankruptcy.Ather Anderson is a good example of what happens when
accountants get so intertwinedw i t h t h e i r c l i e n t s t h a t t h e t h i n l i n e i s
o f t e n b l u r r e d . T h e a c c o u n t i n g f i r m b e c o m e s s o involved with its client
such that it would most of the time turn a blind eye to any fraud

Satyam CFO, auditor guilty of professional

misconduct
The Institute of Chartered Accountants of India (ICAI) disciplinary board has found Satyam
chief financial officer Vadlamani Srinivas and former PwC partner Talluri Srinivas guilty of
professional misconduct.
ICAI president G Ramaswamy said Vadlamani Srinivas, in his role as CFO, did not conduct
proper due diligence and Talluri Srinivas was guilty for not complying with professional
standards.

The institutes final report has now been sent to the men, who will be given the opportunity to
respond at a tribunal hearing in the next couple of days.
In December, the ICAI handed down former audit managers C Ravindranath and P
Sivaprasad a lifetime ban and fines of NR500,000 ($9,706).