Arthur Andersen – The Death of a Giant
Arthur Andersen was once the gold standard of integrity. "Think straight, talk straight" was their motto. They were the auditor for Enron, WorldCom, Qwest, and Waste Management—all major frauds.
Why did they fail?
1. Conflict of Interest (Consulting vs Auditing)
- Andersen charged Enron $25M for Auditing and $27M for Consulting.
- Dilemma: If the Auditor says "This accounting is wrong", the Consultant side loses the $27M contract.
- Result: The Auditor shuts up.
2. Obstruction of Justice
- When the SEC started investigating Enron, Andersen partners ordered the shredding of tons of documents related to Enron.
- this was a criminal act.
The Consequence
- Criminal Conviction: In 2002, Andersen was found guilty of obstruction of justice.
- License Revoked: They lost their CPA license.
- Result: A firm with 85,000 employees collapsed in months. The "Big Five" became the "Big Four".
Note
Lesson: An Auditor's only asset is Reputation. Once trust is lost, the firm is worth nothing.
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