collusion between the successful partnerships

7/28/2019 Collusion Between the Successful Partnerships

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Collusion between the Successful Partnerships

Arthur Andersen Limited Liability Partnership

A Written Report on Corporate Accounting Malpractice

Presented to the Faculty of the Department of Accountancy

College of Economics, Management and Development Studies

In Partial fulfillment of the Requirements

In the Subject BCOM 21(Technical Writing: Business and Accounting Application)

Under Prof. Ludivina Ferrer Victorino, CPA, MBA

Chairperson, Department of Accountancy

By: Ana Marie I. Illut

BS Accountancy 3-1

Cavite State University

Don Severino delas alas Campus

October 2010


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Acknowledgement

This gratitude shall be express, to those people who give me an inspiration for

the denouement of this research. Just a presence, makes a big help for this one.

Specially to Mrs. Ludivinia F. Victorino who stood in our side for the success of

this research. And who is always there to guide and share her knowledge for us to

easily understand every part in doing this paper. And finally I ended up this paper with

my blood, sweat and tears.

I am distinctly thankful to the authors of the book, in which serves as my base in

this paper. And the genuine website that has the information I need to complete this

paper. Without this possible source, this research would not have been possible.

To all my classmates who had also experience the same grief. But through this

grief weve learned so many things to be remembered, knowledge that is really great to

treasure. And by this research we now know the other side of accounting, for having a

fraud.

Finally, to our Almighty God whos always there to give me enough knowledge to

understand every little thing that made me contemplate. And for the strength and for the

blessings. This all was indebted to you God.


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Introduction:

As the economy seeking for new opportunities and new trending products and

services of todays generation many business minded pursue to have a good and

vogue business. But Every now and then many companies abroad and even here in the

Philippines engage in Fraud. Sometimes only the agent in a company causes fraud and

most of the time they unite together to pass off the deceit. By the act of

misrepresentation of the documents many company fell, the efforts, sweats, hardships

are being wasted.

This will give way to Arthur Andersen LLP which is one of the leading auditing

and consulting firms in the world. It is under the management of Arthur Andersen, at

first it created a good feedback from their customers especially those external

audiences associated with the firm with its audit and tax services, which account for less

than half of the companys $ 7 billion in annual revenues. With services such as e -

business, human capital, assurance and risk consulting. Arthur wanted to become the

top trending in their customers and potential customers when it comes to this area.

After years, a good reputation, strategy and brand identity was developed with

the perseverance of the staffs and loyalty to its customer. But as the instances permit,

not all the time all ups in a business there are also downs. In March 2002, one of the

most leading firms in the world, was indicted by the US Department of Justice on

charges of obstructing the course of justice. The company was accused for hindering

DOJs investigation in the ongoing Enron case. Like this company, thought that it would

be perfect because of a good integrity, accused of shredding documents related to

audit client Enron after the SEC launched an inquiry into Enron. Enron is one of its

major clients. This case where the two biggest company involved examines the criminal

charges that Arthur Andersen LLP faced in the Enron case and how the Enron case

eventually led to the closure of Andersen LLP.


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Synopsis

The success, reputation and good name created by the one of the worlds

leading firm, up to the accounting fraud it committed is further the cover of this paper. It

also shows what impact it created in the community of auditing, as it once called as oneof the biggest auditor in the world. And how Arthur Andersen went in doing accounting

malpractice.

Some clients of Andersen are Waste Management, Sunbeam, Baptist

Foundation of Arizona, WorldCom, as well as the infamous Enron. Before the scandal of

Enron was came out, Andersen was also involved with the faulty audits of the company

such as Waste Management and WorldCom. The bankruptcy of WorldCom which

surpassed by the biggest bankruptcy of Enron and it was led to the domino effect of

accounting malpractice in US.

Arthur Andersen who headed the firm until his death in 1947, was very particular

when it comes to accounting standards. And when the news emerged it really a big

shock in a auditing firm like this, for it is a well known firm. As the scandal of Enron was

broadcast to the public, it was associate the Andersen LLP because it was the auditor of

the Enron. As Enron filed for their bankruptcy in December 2001, it was investigated for

illegal accounting practices. The DOJ had begun a criminal investigation against

Andersen in connection with Enron.

When Enron restated its financial statement for the years 1997 to 2000 and for

the two quarters reported a loss of $586 million. Even Andersen known about some

accounting error of Enron , it did not choose to force Enron to reflect it in the financial

statement. However in mid 2001 the team changed its mind and advised Enron to show

it in the financial statement and to write-down $1.2 billion in shareholders equity and

asked to put the writing down into an accounting error.

Followed to this Andersen was charged with a single count of obstruction of

justice, as the firm destroyed tons of paper and deleted huge numbers of computer files

on its audit of Enron. Because of the evidences, Andersen admitted that his employees

shredded documents, but their purpose was not to obstruct justice. As to what had


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happened the company was in the stage if whether they can survive after the

indictment. Many of its clients had dropped the company as their auditor, because they

are afraid that Andersen cant back to its origina l state.

Andersen says that they will fight against the charges and stay in the circulation,and it according to them it is possible to restore some documents it destroyed.


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Table of Contents

History of Arthur Andersen....1 -3

Founding

Reputation

Andersen Consulting and Accenture...4-5

Expanding of Services5 -7

Setbacks at Arthur Andersen7-9

Background..9

The Issue..10

The Case.11-15

The Decision15=16

Berardino Heads Andersen...16-17

Conclusion/Analysis18

Recommendation. 19

Appendix....20-23


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History of Arthur Andersen

Founding

Arthur Andersen was orphaned at the age of 16, by then he ended up working as

a mail boy by day and attended school at night, hereafter being hired as the assistant to

the controller of Allis-Chalmers in Chicago. And by the age of 23, he became the

youngest CPA in Illinois.

The firm of Arthur Andersen was founded in 1913 by Arthur Andersen and

Clarence Delany and they named it as Andersen, Delany & Co. By the cause of

instances its name changed to Arthur Andersen & Co in 1918. Its first client was the

Joseph Schlitz Brewing Company of Milwaukee. In 1915, due to the many contacts

there, it became the second office. In 1917, after attending courses at night while

working full time, he graduated from the Kellogg School at Northwestern University with

a bachelors degree in business.

Andersen had a sturdy faith in education which his key as the basis upon which

the new profession of accounting should be developed. He created the professions

first centralized training program and believe in training during normal working hours.

He was very devoted when it comes to his commitment to aiding educational, civic and

charitable organizations. In 1927, he was elected to the Board of Trustees of

Northwestern University and served as its president from 1930 to 1932. And he was

also chairman of the board of certified public accountant examiners of Illinois.

Arthur Andersen and Clarence DeLany were co-founded the accounting firm

Andersen, DeLany, & Company in 1913. Soon afterwards, in 1918, DeLany left the

company and the name changed to Arthur Andersen & Co. After DeLanys departure,

Arthur Andersen built his company as its sole leader over the next four decades.

Andersen grew steadily throughout the Roaring Twenties, Great Depression, and both

World Wars. The firm benefited from new government regulations that required more

company filings and led to an increasingly complicated tax code for corporations.

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Andersen continually sought out chances to increase its reach. In 1928, it began

the financial investigations that would eventually become its consulting practice. In

1932, it became the bankruptcy trustee for Samuel Insulls failed utility empire.

Andersens branches spread to new locations throughout the United States, and after

1963 it would venture into foreign countries as well. When Arthur Andersen died in

1947, he left behind a modestly successful, well-established firm. He was replaced,

after a brief bout of family infighting, by Leonard Spacek. Spacek quickly ended the

arguments over Andersens successor that had put senior employees at odds with each

other, and pulled the managers together to focus on a new era for Andersen, positioning

the company to become one of the worlds leading accounting firms. By the year 2001,

the trademark Andersen would include a worldwide network of operations with annual

revenues exceeding $9.3 billion.

Reputation

Until his death in 1947, he headed the firm and was a diligent supporter of high

standards in the accounting industry. An enforcer for honesty, he argued that

accountants responsibility was to investors, not their clients management. During the

early years, it is reputed that Andersen was approached by an executive from a localrail utility to sign off on accounts containing flawed accounting, or else face the loss of a

major client. Andersen refused in no uncertain terms, replying that there was not

enough money in the city of Chicago to make him do it. Leonard Spacek, who

succeeded Andersen at the founders death, continued this emphasis on honesty. For

many years, Andersens motto was Think straight, talk straight.

Andersen audited major corporations in the US in the early 1960s, such as

Louiss Lesser Enterprise, Inc.

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Andersen also led a way in a number of areas of accounting standards. Being

among the first to identify sub-prime bust, Andersen dissociated itself from a number of

clients in the 1970s.

Later, with the emergence of stock options as a form of compensation, Andersenwas the first of the major accountancy firms to propose to the FASB that stock options

should be included on expense report, thus, impacting on net profit just as a cash

compensation would.

By the 1980s, standards throughout the industry fell as accountancy firms

struggled to balance their commitment to audit independence against the desire to grow

their prosper consultancy practices. Having established a reputation for IT consultancy

in the 1980s, Andersen was no exception. The firm rapidly expanded its consultancy

practice to the point where the bulk of its revenues were derived from such

engagements, while audit partners were continually encouraged to seek out

opportunities for consulting fees from existing audit clients. By the late 1990s, Andersen

had succeeded in tripling the per share revenues of its partner.

Predictably, Andersen struggled to balance the need to maintain its faithfulness

to accounting standards with its clients desire to maximize profit, particularly in the era

of quarterly earnings report. Andersen has been alleged to have been involved in the

fraudulent accounting and auditing of Sunbeam Products, Waste Management, Inc.,

Asia Pulp & Paper, and the Baptist Foundation of Arizona, WorldCom, as well as the

infamous Enron case, among others.

Two of the last three Comptroller Generals of the US General Accounting Office

(now the general Accountability Office) were top executives of Arthur Andersen.

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Andersen Consulting and Accenture

The consulting wing of the firm became increasingly important during the 1970s

and 1980s, growing at a much faster rate than the more established accounting,

auditing, and tax practice. This disproportionate growth, and the consulting divisionpartners belief that they were not garnering their fair share of firm profits, created

increasing friction between the two division.

In 1989, Arthur Andersen and Andersen Consulting became separate units of

Andersen Worldwide Societe Cooperative. Arthur Andersen increased its use of

accounting services as a spring board to sign up clients for Andersen Consulting more

lucrative business.

The two businesses spent most of the 1990s in a bitter dispute. Andersen

Consulting saw a huge surge in profits during the decade. However, the consultants

continued to resent transfer payments they were required to make to Arthur Andersen.

In august 2000, at the conclusion of International Chamber of Commerce arbitration of

the dispute, the arbitrators granted Andersen Consulting its independence from Arthur

Andersen, but awarded the US $ 1.2 billion in past payments (held in escrow pending

the ruling) to Arthur Andersen, and declared that Andersen Consulting could no longer

use the Andersen name. As a result Andersen Consulting changed its name to

Accenture on New Years Day 2001 and Arthur Andersen meanwhile now having the

right to the Andersen Consulting name rebranded itself as Andersen.

Perhaps most telling about who won the decision was that four hours after the

arbitrator made his ruling, Arthur Andersen CEO Jim Wadia resigned. Industry analysts

and business school professors alike viewed the event as a complete victory for

Andersen Consulting. Jim Wadia would provide insight on his resignation years later at

a Harvard Business School case activity about the split.

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It turned out that the Arthur Andersen board passed the resolution saying he had to

resign if he didnt get at least an incremental US $4 billion (either through negotiation or

via the arbitrator decision) for the consulting practice to split off, hence his quick

resignation once the decision was announced.

Accounts vary on why the split occurred-executives on both sides of the split cite

greed and arrogance on the part of the other side, and executives on the Andersen

Consulting side maintained breach of contract when Arthur Andersen created a second

consulting group, AABC (Arthur Andersen Business Consulting) which began to

complete directly with Andersen Consulting in the marketplace. Many of the AABC firms

were bought out by other consulting companies in 2002, most notably, Deloitte

(especially in Europe), Hitachi Consulting, which was later acquired by IBM, and KPMG

Consulting, which later changed its name to Bearing Point.

Expanding of Services 1950-2000

In the nineteenth century, accounting included primarily bookkeeping

responsibilities; over the course of the twentieth century, however, the accounting

industry moved far beyond this original function. Work at Arthur Andersen eventually

included services such as both internal and independent audits, tax process oversight,

legal services, and human resource work.

One of the most significant non-auditing functions that Andersen offered its clients was

consulting. This piece of the firms business began early in the companys history and

by 1954, Andersen had developed a separate unit for its consulting business. Andersen

experienced internal conflicts between accounting and consulting from the time thatthese two branches split until the year 2000.

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Eventually, Andersen established Andersen World, a global corporation that provided

an umbrella organization for both consulting and accounting, in the hope that a

reorganized company structure could defuse some of the tension. But quarrels only

intensified, especially as Andersen Accounting developed its own consulting division to

serve those companies not covered under the Andersen Consulting unit.

Power struggles continued between the different departments at Andersen into the

1990s. In the 1990s the problems of how to combine consulting and auditing work

grew in scope as observers outside of Andersen raised questions about potential

conflicts of interest at the Big Five accounting firms, all of which derived significant

revenues from consulting services. A 2002 report in The Accounting Review, for

example, calculated that throughout the 1990s profits from consulting at the Big Five

auditors were three times those produced by auditing work. The ratios of an individual

executives annual income were often weighted even more heavily towards consulting.

The resulting incentive structure produced rewards for those workers who brought in a

high volume of consulting work, not those who performed their duties well as auditors.

In the best case this system advanced the careers of mediocre accountants. In the

worst case, Andersen partners approved on poor auditing jobs when executives

received high commissions from the consulting business generated by a companys

fraudulent financial transactions. Consulting was not the only relationship between

auditors and their clients that came under scrutiny in the 1990s. Individual branches of

Andersen each focused on a single large client. Critics accused these offices of losing

their neutrality through close associations with the companies they would audit. At

Enron, for example, Andersen served not only as an external auditor, but the companys

internal auditor as well. This close connection led to a situation in which Andersen

accountants, acting in their capacity as independent auditors, signed off on their own

internal accounting work. Andersen accountants were also often checking the work ofpast, or potential, employers.

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The cross pollination of employee pools between Andersens Houston office and

Enron headquarters was an established practice. The President, Vice President, and

Chief Account Officer positions were all held by former Andersen employees .

Although the SEC would later accuse Andersen partners of actively promotingtheir own interest over their accounting duties in the new business climate, a large part

of the changes seen in the accounting industry were simply responses to changes in

business. During a period of incredible economic growth in the 1990s, new forms of

assets and liabilities emerged, firms entered into joint-venture agreements, and

engaged in a variety of business transactions across different markets. The public could

now invest in innovative companies that had expanded beyond a focus on one or two

fields to trade in multiple fields, many of which had little connection to each other.

Enron, once a gas pipeline company, was considered a visionary leader in this new

environment. The corporation placed a premium on novel ideas, investing in everything

from broadband to pulp, and leveraging a large amount of debt to fund these projects.

With the high volume of money changing hands in the bull markets, opportunities arose

for some executives to divert funds for their personal use. These new strategies were

unprecedented in the accounting world, and so auditors, like Andersen, had to discover

new ways to monitor business effectively. Sometimes they did not succeed.

Setbacks at Andersen 1996-2000

Not all transactions went smoothly as both the business community and auditing

firms generated new functions that did not fit easily into the regulatory framework

devised by the government in the 1930s. The SEC had begun to adapt, but only slowly,

and during the process of changing federal oversight, the Big Five accounting firms

entered into more and more political battles. Andersen found itself at odds with

government regulators and eventually it came under investigation for several improper

auditing jobs.

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Two major scandals broke at Andersen during the 1996-2001 period: Waste

Management Systems and Sunbeam. Of these, Waste Management proved the most

damaging. In 1998, Waste Management, an Andersen client for several decades,

restated its earnings to show an overestimate of $1.4 billion over a four-year period.

This was the largest restatement in American history (Enron would later reveal a $600

million errorless than half of Waste Managements inflation). The SEC investigation

into this incident turned up several incriminating documents at Andersen offices. After

this investigation, Andersen instituted its document retention policy that would lead to

the shredding of Enron documents three years later.

Sunbeam also misstated its earnings for years when that company was an

Andersen client, though not to the same degree as Waste Management. In both cases,

Andersen paid fines that reached hundreds of millions of dollars, but managed to

escape without any official recognition of wrong doing.

Another blow to Andersen Accounting came in August of 2000, when a lengthy

arbitration process ended in the formal separation of its consulting unit to become its

own, unaffiliated company. The disputes between the consulting and auditing branches

of Andersen reached back almost half a century. Directly following its legal split from

Andersen, the consulting firm renamed itself Accenture and launched a massive

campaign to reinvent its image, purging itself of any remaining ties with Andersen by

emphasizing its historically separate nature (the Accenture website credits the

companys beginnings to a plan to install a computer in General Electric in 1953 without

any mention of accountants). Now Accenture is a publicly owned company that

specializes in fast-paced development of innovative technology solutions for its global

clients.

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Even with its setbacks at the end of the 1990s, Andersen did not lose its place

as a major accounting firm. The company had 1,500 senior partners and retained

85,000 employees in 84 different countries at the start of 2000. At this time, hoping to

prepare the company to handle any future crises, management brought in a new CEO:

Joseph Berardino.

Background

During the fall ofEnron, Arthur Andersen, Enron's accounting firm, instructed its

employees to destroy documents relating to Enron after Andersen officials learned they

would soon be investigated by the Securities and Exchange Commission. On May 6,

2002, a charge of obstructing an official proceeding of the Securities and Exchange

Commission was filed against Arthur Andersen LLP in the United States District Court

for the Southern District of Texas. The indictment was served by Michael Chertoff, who

was subsequently appointed Secretary of Homeland Security by President George W.

Bush. The jury found Arthur Andersen guilty on June 15. Since federal regulations do

not allow convicted felons to audit public companies, Andersen surrendered

its CPA license on August 31, effectively putting the firm out of business in the United

States.

Andersen appealed to the United States Court of Appeals for the Fifth Circuit.

The Fifth Circuit affirmed the district court's decision. Andersen petitioned for a writ of

certiorari to the Supreme Court, which was granted.

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http://en.wikipedia.org/wiki/Enronhttp://en.wikipedia.org/wiki/United_States_District_Court_for_the_Southern_District_of_Texashttp://en.wikipedia.org/wiki/United_States_District_Court_for_the_Southern_District_of_Texashttp://en.wikipedia.org/wiki/Michael_Chertoffhttp://en.wikipedia.org/wiki/George_W._Bushhttp://en.wikipedia.org/wiki/George_W._Bushhttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_Fifth_Circuithttp://en.wikipedia.org/wiki/Certiorari#United_States_lawhttp://en.wikipedia.org/wiki/Certiorari#United_States_lawhttp://en.wikipedia.org/wiki/Certiorari#United_States_lawhttp://en.wikipedia.org/wiki/Certiorari#United_States_lawhttp://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_Fifth_Circuithttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/George_W._Bushhttp://en.wikipedia.org/wiki/George_W._Bushhttp://en.wikipedia.org/wiki/Michael_Chertoffhttp://en.wikipedia.org/wiki/United_States_District_Court_for_the_Southern_District_of_Texashttp://en.wikipedia.org/wiki/United_States_District_Court_for_the_Southern_District_of_Texashttp://en.wikipedia.org/wiki/Enron


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The Issue

The issue was whether or not the jury had been properly communicated the law

which Andersen was charged with violating. They were charged under 18 U.S.C 1512

(b) (2) (A) and (B), which made it a crime to knowinglycorruptly persuade anotherpersonwith intent to..cause that person to withhold documents from. Or alter

documents to use in, an official proceeding. Arthur Andersen believed the instructions

given to the jury were not proper. The jury was reportedly told even if petitioner

honestly and sincerely believed its conduct was lawful, the jury could convict. This is

not true, held the Supreme Court. The statute they were being charged under used the

language knowinglycorruptly persuade. Arthur Andersen managers did instruct their

employees to delete Enron-related files, but those actions were within their document

retention policy. If the document retention policy was constructed to keep certain

information private, even from the government, Arthur Andersen was still not corruptly

persuading their employees to keep said information private.

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The Case

The Supreme Court overturned the 2002 criminal conviction of Enron Corp.'s

accounting firm yesterday, nullifying with a single stroke one of the government's

biggest victories in the corporate scandals that climaxed the bull market of the 1990s.

The court ruled unanimously that the Houston jury that found Arthur Andersen

LLP guilty of obstruction of justice was given overly broad instructions by the federal

judge who presided at the trial.

As a result of the faulty instructions, the justices ruled, the firm was convicted

without proof that its shredding of documents was deliberately intended to undermine a

looming Securities and Exchange Commission inquiry in fall 2001. U.S. District Judge

Melinda Harmon should have instructed the jury that the law required the government to

prove that Andersen knew it was breaking the law, the court ruled.

"Indeed, it is striking how little culpability the [judge's] instructions required," Chief

Justice William H. Rehnquist wrote in the opinion for the court. "For example, the jury

was told that, 'even if [Andersen] honestly and sincerely believed that its conduct was

lawful, you may find [it] guilty.' " Legal analysts said the decision was a major setback to

the Justice Department's corporate crime prosecutions.

To lose a case like this is huge," said William B. Mateja, a former official of the

Justice Department's corporate fraud task force. "Arthur Andersen was the poster-child

case of all the corporate fraud cases."

More broadly, some lawyers said the court's decision shows its sympathy for

corporate America's view that companies should be freer to engage in routine document

destruction -- often under the ironic title of "document retention policy."

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That is important because the statute under which the Justice Department

prosecuted Andersen was amended by Congress in the 2002 Sarbanes-Oxley law to

make it easier for the government to prosecute wrongful document destruction.

"The Supreme Court may be using this as a vehicle to signal some concern"

about Sarbanes-Oxley, said Henry T.C. Hu, a professor of corporate and securities law

at the University of Texas.

But Mateja, now in private practice, said that Congress's intent to prevent

improper document destruction was clear. "I'm still going to counsel clients to be

extremely careful if and when they dust off document-retention policies," he said.

Although a rebuke to the government, the court's decision is little comfort for

Andersen and its former employees. The Chicago-based firm has a staff of only 200 left

out of the 28,000 people who once worked there. But the company said the ruling may

help the firm in its main remaining task: fighting shareholder lawsuits related to its work

for Enron, Global Crossing Ltd. and other clients.

"We pursued an appeal of this case not because we believed Arthur Andersen

could be restored to its previous position, but because we had an obligation to set the

record straight and clear the good name of the 28,000 innocent people who lost their

jobs at the time of the indictment and tens of thousands of Andersen alumni, as well as

to help secure a fair resolution of the civil litigation facing the firm," company spokesman

Patrick Dorton said in a statement.

Acting Assistant Attorney General John C. Richter said in a statement that the

Justice Department had charged Andersen because of its "determination that the

substantial destruction of documents in anticipation of an investigation by the Securities

and Exchange Commission violated the law."

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Richter said prosecutors continue to examine the decision and will "determine

whether to retry the case."

But legal analysts said that is unlikely, given the constitutional prohibition against

double jeopardy and the tougher standard of proof required by yesterday's decision.

"It would be 10 times harder with a jury instruction that you must show evil

intent," said Paul Kamenar, senior executive counsel for the conservative Washington

Legal Foundation, which supported Andersen in the case.

One possible beneficiary of the decision is former investment banker Frank P.

Quattrone, who was convicted last year on similar charges of ordering document

destruction to thwart investigations in 2000.

It may also affect the conviction of David B. Duncan, the Andersen partner who

pleaded guilty to a single count of obstructing justice in April 2002, under the

government's interpretation of the law, then testified against his former firm. Duncan is a

likely witness in upcoming Enron criminal trials, and he will not be sentenced until his

government cooperation has ended.

Andersen was in charge of auditing the books at Enron, the high-flying Houston

energy conglomerate whose financial meltdown in fall 2001 wiped out the savings of

thousands of employees and other small investors -- and politically damaged the Bush

administration, with which Enron Chairman Kenneth L. Lay had been close.

As Enron's collapse became public, Nancy Temple, a lawyer for Andersen, sent

an e-mail on Oct. 19, 2001, reminding employees of the company's policy of routine

document shredding. Two tons of documents were destroyed until the SEC formally

notified Andersen on Nov. 9, 2001, that it was under investigation.

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In prosecuting Andersen, the government argued that the shredding was done to

prevent the SEC from finding out about such matters as Andersen's role in helping

Enron puff up the reported returns of "off balance sheet" activities by units known as

"Raptors."

Thus, the government argued, the firm violated a federal law that made it a crime to

"corruptly persuade" anyone to cover up evidence. At oral argument in the Supreme

Court, a Justice Department lawyer likened Andersen to a felon wiping his fingerprints

at a crime scene.

But in his opinion yesterday, Rehnquist suggested that the company was more

akin to "a mother who suggests to her son that he invoke his right against compelled

self-incrimination."

It "is not inherently malign" to persuade someone to withhold documents from the

government, but that is what the government asserted with respect to Andersen's

conduct, Rehnquist wrote.

The case isArthur Andersen LLP v. United States , No. 04-368.

Staff writer Carrie Johnson contributed to this report.

In October 2001, Enron, a leading energy trading company in the US and one of

the biggest clients of Andersen, announced its third-quarter results for 2001. The third-

quarter results included a loss of $638 million, a $35 million write-down due to losses on

its partnerships, and a decrease in shareholder's equity by $1.2 billion.

This announcement led to a sharp decline in the stock price of Enron (40%).

Following this, suspecting Enron of financial misappropriations, the SEC launched an

investigation into Enron's financial dealings in late October. The investigation revealed

serious accounting misappropriations by Enron between 1996 and 2001.

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The instructions were so vague that they "simply failed to convey the requisite

consciousness of wrongdoing," Rehnquist wrote. "Indeed, it is striking how little

culpability the instructions required." Rehnquist's opinion also expressed grave

skepticism at the government's definition of "corrupt persuasion"persuasion with an

improper purpose even without knowing an act is unlawful. "Only persons conscious of

wrongdoing can be said to 'knowingly corruptly persuade,' " he wrote.

Although the decision vacated Andersen's felony conviction, as of

2011 Andersen has not returned as a viable business even on a limited scale.

Berardino Heads Andersen

Joseph Berardino was billed as a crisis manager who could take Andersen back

to its roots, helping the company recover from its recent accounting scandals, along

with healing the rift created by the contentious divorce with Andersen Consulting.

Berardino had a solid accounting background. He took pride in his skills as an auditor

and had been a dedicated employee at Arthur Andersen since he graduated from

Fairfield University in 1972. Senior executives greeted him as a buck stops here type

of CEO who could clean up the dubious bookkeeping that had gotten the company in

trouble before.

Unfortunately for Berardino, most of the errors that would lead to Andersens

unraveling were in place long before he took his place as CEO in January of 2001. For

example, although he did consolidate top management into a council of 5 (down from

17) to chart a decisive course for the company, the partners who dealt with the hundred

top clients had already established a high level of autonomy in their branches. David

Duncan had abused this authority when his Houston office approved fraudulent Enron

accounts.

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The inflated earnings in Enron reports that would prompt the SEC investigation

had been recorded during the five years prior to Berardinos promotion. It was too late

for him to undo these mistakes; he could only mitigate their repercussions. Many of the

problems Andersen faced were not unique to that company. In truth, for Berardino to

truly return to accounting its roots, to the way it had been before the 1990s, he would

have had to change an entire industry, not just one firm. Every auditor had to evaluate a

new range of business activities engaged in by corporations who no longer conformed

to traditional financial practices. The other Big Five accounting firms also all combined

consulting and auditing work. The Big Five accountants shared so many concerns, in

fact, that they had banded together into a single lobbying group to challenge Congress

on unwanted regulatory changes and donate large sums to political campaigns

sympathetic to their cause.

Berardino himself had earned his reputation in the accounting world for his

confrontations with then- chairman of the SEC Arthur Levitt. Berardino challenged Levitt

directly when the chairman moved to block Andersens attempts to rejuvenate its

consulting activities following the 2000 Accenture split. Like many in the accounting

industry, Berardino argued that consulting work enhanced auditing by giving employees

a firsthand knowledge of the industry that they monitored. Berardino understood that

auditors were no longer just auditors and he saw no need to challenge what had

become standard practice.

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Analysis

Committing a fraud is just like committing a simple mistake, because as we

examine different companies most of them engage in wrongdoing. But in a big sense

committing a fraud is really prohibited by law, because you benefit in the expense of

others. And most of the time the companies involve in different fraud are the well known

companies, the best of the best. But there no such thing as perfect. What is the purpose

of doing such act? For the sake of profit? Or for personal benefits. They have their own

reason why they still doing that.

Despite of those negative statement, there still some companies who really give

importance when it comes to their integrity. They take responsibility of the wrongdoings

of their constituents. As we relate this to Arthur Andersen LLP, they failed in taking the

responsibility and supervising their employees. As we go back to the fraud they

committed Andersen admitted that his employees shredded the documents. By this we

can see that Andersen became unconcerned to the result of this.

Eventually, the team of Andersen was indicted of doing such fraud. They really

accountable for that, even if they honestly know that their act was lawful. But the

evidence gave its final verdict.

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Recommendation

Accounting malpractice is one of things that must be avoided by all respected

auditing firms around the world. In just one mistake, the hardship you invest in

establishing a good reputation will be wasted. To get rid of some misrepresentation in a

financial statement it will be better if a company has a good internal control. Through

this the head of the company can supervise carefully the different occurrences in day to

day operations. By means of internal control the entity can easily achieve the

companys goal.

In employing some applicants it should be considered the credibility and honesty

of the people to be hired to avoid some manipulations.

What happened in Arthur Andersen is just a lesson in the past. Even this

company is really a big loss in auditing community. The company goes beyond its

limitations, hereafter losses its chance to recover the reputation it created. And maybe

this company lacks internal control because they become unconcerned to the result of

the things they will do.

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Appendix

Arthur Andersen Guilty in Enron case

A jury in the United States has found accountancy firm Arthur Andersen guilty ofobstructing justice by shredding documents relating to the failed energy giant Enron.

The verdict could be the death knell for the 89-year old company, once one of theworld's top five accountants.

Andersen has already lost much of its business, and two-thirds of its once 28,000 strongUS workforce. Following the conviction, multi-million dollar lawsuits brought by Enroninvestors and shareholders demanding compensation are likely to follow, and couldbankrupt the firm.

The company called Saturday's verdict "wrong" and is contemplating an appeal, but atthe same time did promise to stop auditing publicly traded companies - pre-empting anofficial ban that now is a near certainty.

Enron's collapse last December was partly blamed on questionable accounting that kepthundreds of millions of dollars in debt off its books.

Andersen, which audited Enron's accounts, went on trial in Houston, Texas, afterallegations that employees had illegally destroyed thousands of documents andcomputer records relating to its scandal-hit client, which was based there.

The 12-member jury had heard nearly five weeks of testimony and was in its 72nd hourof deliberation over 10 days when it finally reached the verdict.

Andersen's defence lawyer, Rusty Hardin, said the firm was disappointed by the verdict.

He said it would file an appeal but had to wait until after the sentencing date - 11October - to do so.

He added: "This company did not commit a crime."

Andersen also faces a fine of up to $500,000.

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'Housekeeping'

The firm's lawyers had argued that the shredding of documents had been routinehousekeeping, but the jury decided it was an attempt to thwart federal regulatorsinvestigating Enron.

The trial heard how one Andersen executive said on a training video that if documentswere shredded and then the investigators arrived, that would be good.

But Mr Hardin had argued that a number of important documents had survived theshredding, suggesting there was no conspiracy to cover up Andersen's work on Enron'sbooks.

The prosecution's star witness was former Andersen partner David Duncan, who was incharge of the Enron audit team.

He admitted obstructing justice in April and told jurors that he had signed an agreementwith Andersen to present a united front, claiming that neither had done anything wrong.

He said that he had reneged on the agreement after much "soul searching".

Legal precedent

The verdict came after US District Court Judge Melinda Harmon made what is believedto be a landmark legal decision to break a deadlock among the jury.

She ruled that jurors could reach a verdict on the company as a whole, even though

they failed to agree on the individual responsible for ordering the shredding.

Judge Harmon agonised over the decision for more than a day as she sought to clarifya point of law that mystified even seasoned attorneys and other experts on American

jurisprudence.

"I'm kind of in a position of a case of first impression, which is terrifying for a districtjudge," she said, aware that her ruling could set a precedent and be subject to futurelegal challenges.

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Auditor saw Enron papers shredded

David Duncan, the government's star witness in the Andersen trial, has said he sawcolleagues at the accountancy firm "cleaning out" Enron related documents as federalinvestigators prepared to launch an investigation.

The former Andersen accountant, in his second day on the witness stand, said theshredding began after a meeting on 23 October after he gave Andersen staff a codedinstruction to destroy potentially incriminating documents.

While the shredding order was not explicit, "it was generally understood", Mr Duncansaid.

He began clearing out his own files after the meeting, deleting e-mails relating to Enron.

"I expected all of the partners and managers to do the same thing," he said, adding that

he saw colleagues "cleaning out" office areas.

Disputed e-mail

The comments added to an admission on Monday by Mr Duncan, who had headedAndersen Enron audit account since 1987 until his dismissal in January, that he had"obstructed the course of justice" by destroying evidence.

The move denied key documents to federal investigators probing the demise of Enron,an energy firm which filed for bankruptcy in December in the biggest corporate failure inUS history.

Concerns over the quality of financial controls at the firm before its collapse - and thepaperwork destruction afterwards - have since sparked meltdown at Andersen, Enron'sauditors.

The case, in which Andersen is charged with obstruction of justice for destroying Enron-related documents, centres on whether Mr Duncan acted alone, or on orders fromabove.

Mr Duncan claims he was acting on an e-mail from Andersen lawyer Nancy Temple,who denies giving such advice.

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Andersen claims no one intentionally destroyed documents to keep them out of thehands of the federal investigators.

"Problematic" issue

Also on Tuesday Mr Duncan outlined early fears among partners at Andersen, whichhad already been placed on probation over sloppy accounting, over the Enron accounts.

Nineteen senior Andersen partners had last year discussed ways of tackling theappearance of massive losses at Enron, and avoiding the threat of further watchdogintervention.

Andersen had taken at face value the findings of Enron's lawyers over a complicated offbalance sheet set-up, later considered a primary factor behind Enron's collapse.

"It was essential there was a resolution of the problem before the third quarter earnings

release," Mr Duncan said.

"If it was an error it would have been very problematic. It would also raise the risk of areview by an outsider."

It was a decision in November to restate earnings downwards by about $600m whichsparked the Enron crisis.

Mr. Duncan's admission of destroying evidence could see him jailed for up to 10 years,although he is hoping for leniency in return for coming clean on his actions.

He will be sentenced on 26 August.

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collusion between the successful partnerships

Documents