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Arthur Andersen Accounting Scandal

 

Arthur Andersen realized, before the rest of the Big Five, that business consulting was a very lucrative business.

In 1989, Arthur Andersenand Andersen Consultingbecame separate units of Andersen Worldwide.Andersen began using its accounting services as a springboard to sign up clients for Andersen Consulting's more lucrative business.

Arthur Andersen and Andersen Consulting spent the 1990s in a bitter dispute. The Andersen Consulting group saw a enormous growth in profits during 90's from the business it was receiving from Arthur Andersen.

However, the consultants at Andersen Consulting felt they were being underpaid for the work they were doing. In 2000 an international arbitrator granted Andersen Consulting its independence.

As a result, in 2001, Andersen Consulting was forced to change its name to Accenture. Accenture agreed to pay $1.2 billion in past payments to the Arthur Andersen firm.

Accounts vary on why the split occurred — executives on both sides of the split cited greed and arrogance on the part of the other side.

Executives with Andersen Consulting maintained breach of contract when Arthur Andersen created a second consulting group, AABC (Arthur Andersen Business Consulting) which began to compete directly with AC in the marketplace.

In 2002, Andersen was convicted of witness tampering for shredding documents related to its audit of Enron. Since the Securities and Exchange Commission does not allow convicted felons to audit public companies, the firm agreed to surrender its licenses and its right to practice.

In 2005, the Supreme Court of the United States unanimously overturned Andersen's conviction due to flaws in the jury instructions.

In the court's view, the instructions allowed the jury to convict Andersen without proving that the firm knew it broke the law or that there was a link to any official proceeding that prohibited the destruction of documents.

The opinion was also highly skeptical of the government's definition of "corrupt persuasion"--persuasion with an improper purpose even without knowing an act is unlawful.

Despite this ruling, it is highly unlikely Andersen will ever return as a viable business.

The firm lost nearly all of its clients when it was indicted, and there are over 100 civil suits pending against the firm related to its audits of Enron and other companies.

It began winding down its American operations after the indictment. From a high of 28,000 employees in the US and 85,000 worldwide, the firm is now down to around 200 based primarily in Chicago. Most of their attention is on handling the lawsuits.

 

 

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