Analysis of Unethical Actions: Arthur Andersen Case Study

The assignment is a case study analyzing the unethical actions of Arthur Andersen, particularly in relation to the Enron scandal. The case study highlights how Arthur Andersen enabled Enron to manipulate financial statements by creating Special Purpose Vehicles (SPVs) to hide losses and inflate profits. The accounting firm approved the issuance of shares using notes receivables, concealed weaknesses in internal controls and conflicts of interest from the audit committee, and even shredded audit documents. The case study emphasizes that Arthur Andersen certified the revenue recognition policy, which allowed Enron to recognize revenue upfront, and failed to inform the audit committee about conflicts of interest. The analysis concludes that Arthur Andersen's unethical practices directly contributed to the firm's collapse.

Unethical practices followed by Arthur Andersen:
Arthur Andersen was involved in one of the biggest scams of Enron scandal and it was resulted
in collapse of one of biggest accounting firm out of big five accounting firms in the world.
Arthur Andersen helped the Enron management to cheat the stakeholders by disclosing ways to
make fake profits and hide huge losses through the creation of Special Purpose Vehicle (SPV).
The accounting firm also allowed the Enron management to issue shares “as an increase in to
shareholder equity” by using the notes receivables and the accounting firm provided his approval
or clearance for the same. The accounting firm also helped the Enron to hide the weakness in
internal control, conflict of interest from the audit committee and the information were never
presented in audit committee meetings. The accounting firm also helped the Enron by shredding
the audit documents and the accounting firm followed and maintained all the deficiencies related
to audit and consulting to Enron which resulted in such a big scam. The accounting firm was
completely following unethical practices and fully helped the Enron in wrong actions. Enron was
recognizing the revenue to be received through out the life of contract in the year of signing of
contract itself and the accounting firm certified the revenue recognition accounting policy. The
firm also not informed to the audit committee that Enron’s CFO and senior personnel were
involved in various conflict of interest transactions. The accounting firm has also not considered
the suggestions and recommendations of quality control partner, Carl Bass.
Thus, we can conclude that the accounting firm was completely involved in unethical
transactions and practices which resulted in collapse of Arthur Andersen.