Arthur Andersen

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Ethics Case: Arthur Andersen’s Troubles
Once the largest professional services firm in the world, and arguably the most respected, Arthur Andersen LLP (AA) has disappeared. The Big 5 accounting firms are now the Big 4. Why did this happen? How did it happen? What are the lessons to be learned?
Arthur Andersen, a twenty-eight-year-old Northwestern University accounting professor, co-founded the firm in 1913. Tales of his integrity are legendary, and the culture of the firm was very much in his image. For example, “Just months after [Andersen] set up shop in Chicago, the president of a local railroad insisted that he approve a transaction that would have inflated earnings. Andersen told the executive there was “not enough money in the City of Chicago” to make him do it.”1 In 1954, consulting services began with the installation of the first mainframe computer at General Electric to automate its payroll systems. By 1978, AA became the largest professional services firm in the world with revenues of $546 million, and by 1984 consulting brought in more profit than auditing. In 1989, the consulting operation, wanting more control and a larger share of profit, became a separate part of a Swiss partnership from the audit operation. In 2000, following an arbitrator’s ruling that a break fee of $1 billion be paid, Andersen Consulting split completely and changed its name to Accenture. AA, the audit practice, continued to offer a limited set of related services, such as tax advice.2
Changing Personalities and Culture
Throughout most of its history, AA stood for integrity and technical competence. The firm invested heavily in training programs and a training facility in St. Charles, a small town south of Chicago, and developed it until it had over 3,000 residence beds and outstanding computer and classroom facilities. AA personnel from all over the world were brought to St.…...

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