Capstone Case Study †Arthur Andersen LLP Essay

1. avocationion the environmental, strategic and organizational veers that occurred over the life of Andersen in the context of find 11.1.While Andersen started off as a stable environment, once changes started organism do to the main stress of the order m either changes were expedited. While compose successful in its take stocking none, former(a) opportunities arose that altogetherowed for quicker and more energetic r hithertoue growth. This strategic shift from auditing only to offering a keep down of other services (automated bookkeeping, information technologies, consulting, embodied staffing) eventually led to a rift within the come with, the separation of summonss into two companies under maven umbrella, and the eventually severance of those two companies into two wholly separate corporate entities.Once the two companies (Andersen Consulting and Arthur Anderson) split, Arthur Andersen, which was originally the auditing only arm, but had dipped masking into t he consulting barter even though it should non have per its covenant with AC, went full force into offering the full range of services. In the quest for the biggest sale and to drive non-audit revenue, managers were compensated based on sales targets sort of of performance or quality of tempt. This lack of quality control and change in the focus of the business was the beginning of the downward projection of AA. The item that there were changes in all three areas, environmental, strategic and organizational, made it angiotensin converting enzymerous for there to be tight control at AA and almost made it acceptable to make fishy closes as long as the clients got what they treasured and revenues continued to come in.2. Evaluate Andersens claim that their problems on the Enron audit were due to a few bad partners in the organization. If you agree with this claim, ad coif what you retrieve were the root causes of the problem.It was AAs decision to hire 40 auditors from Enro n, therefore augmented by 150 oftheir own staff, and place them within Enron as its in house chronicle staff. Since the staff was on direct at Enron, attended Enron meetings, and made decisions in the best interest of Enron and not with the idea of doing quality take a leak, it is hard to put stock in AAs claim that it was only a few bad partners. Also, AA made the decision to break up its own Professional Standards crowd and re-locate fractions of that grouping to local offices. Once that happen though, their billet was usurped and held no water. If they questioned decisions, they were removed. It is up to the company to make decisions that not only help generate business, but cling to the company and its employees from any questionable situations or circumstances where wrong scenarios might play out.3. Suppose you were Andersens managing partner in the untimely 1990s. Would you have make anything differently than the actual management (assuming you k upstart only what they did at the time)?There are a couple of things that I could have done had I been the managing partner for Andersen in the 1990s. I conceive the separation of the consulting business and the explanation business into two companies was actually a good move. The item that AA eventually started to offer and go after non-auditing services business with clients was where a mistake was made in my opinion. If I were a partner at AA I would have strictly enforced the agreement that we would be adhesive with auditing business only.While offering a lower margin than the consulting business, it was a solid foundation and allowed more supervising, tight controls and decreased the worrylihood that questionable decisions would be made. I also would have kept the Professional Standards Group in tact to oversee and review all aspects of the operation. Splitting up the group and assigning individual members to local offices basi phone cally neutered their power and allowed for those looking to manipulate the system to do so.4. Discuss the relation surrounded by what happened at Andersen and multitask principal agent theory.With the Multi-Task Agent Theory, certain tasks are rewarded and other tasksare not, and because of this the non-rewarded tasks suffer from neglect of a decrease in quality. The for the first time time this was an issue is was before the split into two companies, where those driving the consulting and IT business were unhappy with the fact that the auditing side had so very much power over the company even though it was not the segment driving the revenue. after(prenominal) the eventual split into AC and AA under one umbrella, and then the inwardness split into two separate corporations, with Andersen bringing in business other than auditing was rewarded more than auditing business, to the point that it was expect that managing partners brought in twice as much consulting and other business as it did auditing business, otherwise face penalties or even termination. In all three stages of the companys history the inconsistency between the consulting business and the auditing business led to there being a de-emphasis on the auditing segment of the business (both in quality and as a driver of revenue).5. Discuss the relation between the hard and touchy elements of a firms corporate kitchen-gardening in the context of this case.In the case of Andersen, it almost seems as if the changes in the soft elements of corporate culture were either directly related to or a side military force of change in the hard aspects of the corporate culture.As stated in the case study, during the majority of the companys existence, tradition was everywhere. From soft elements like the physical design of offices and the way partners dressed and looked to hard elements like the quality control exerted over all aspects of the business, there were standard all across the bill.As changes started to happen in the hard culture, like the focus being o n driving revenue as opposed to put out quality croak, changes were also seen in the soft aspects of the culture. Managing partners did not dress as sharp, the giants wooden doors of the offices (that seemed to be a metaphor for the strong, sturdy operation of the company) were removed, and a new corporate logo was introduced.6. Do you signify that the problems at Andersen were unique to them or did they exist at the other big accounting firms? Suppose you were the top partner at one of the other major accounting firms at that time of Andersens demise. What action, if any, would you take in rejoinder? Explain.As shown when Andersen themselves called into question the practices of one of its competitors (calling for an investigation), these issues at Andersen are not unique to their company (though it may not happen on as grand of a scale). If I was the top partner at one of the other major accounting firms at the time of Andersens demise, I would have immediately either called f or an internal investigation of my firms practices or volunteered to have my companys practices reviewed by the second gear or another appropriate authority.I would be open with what was found, make any necessary changes to organizational structure or practices, and move forward. I think this would be important because at the time of Andersens demise, it is likely the credibility of ALL accounting firms was hurt, and I would loss there is to be cogent evidence that our company was doing things the right way.7. In 2000, the SEC proposed new regulations that would limit consulting work by accounting firms. This marriage proposal was not passed by congress. Do you think the legislators were trying to act in the public interest when they failed to pass this proposal? Explain.Legislators were not acting in the publics best interests they were bow to pressure from the auditing industry lobbyists. Steve Samek, who spearheaded operations that already lead lawsuits, payouts, bankruptci es and fines, led the flower to oppose the proposal. At that point it should have been obvious that the right call was passing the proposal. The fact that different legislation related to the oversight of accounting firms was eventually passed later on in 2002 (the SOA) shows that oversight was necessary, but effective needed a spectacular failure like Andersen/Enron to allow legislators to smell comfortable in taking a stand.8. The American Institute of CPAs is the native concernal association for CPAs. It has developed a Code of Professional get hold of that sets thestandards of air for CPAs. People can file complaints about the ethical conduct of a CPA with the AICPA, which can levy sanctions and other penalties against its members. Do you think that the unethical conduct at Andersen (and possibly other accounting firms) was the happy chance of the AICPA for not setting and enforcing higher ethical standard among its members? Explain.While I think the AICPA has a place in setting standards and ethics in the industry, and has the right to levy sanctions and penalties against its members (based on complaints that are filed), they are not a regulative agency and their reach only extends so far. In reality, being a member organization, if a corporation does not want to deal with or answer to the AICPA, they and choose not to be a member.It may hurt their reputation, but in the long run the work they do and the clients they have will have a much great effect of their business than whether or not they are a member of the AICPA. While it is nice to have organizations like the AICPA and the SEC overlooking the practices of corporations in the industry, it is hard to transfer fault for the unethical behavior of a company away from the company that behaved that was to some member organization or regulatory agency. It is the organization or agencys place to set guidelines and do when corporations do not follow them.9. The Sarbanes-Oxley Act of 2002 establis hed a new five-person board to oversee financial accounting in publicly traded corporations. The board is appointed by the SEC. Prior to the creation of this board the industry relied principally on self-regulation through the AICPA. Do you think the establishment of the new oversight board was a good idea or should he profession have continued to be self-regulated?I think in practice, a combination of both works. The industry need to show that it is interested itself in keeping its practices on the level and being transparent. But at the end of the day, you will always find someone who likes to work outside the system. In these cases having the SEC oversight board is a critical rotating shaft to keep companies in line that may think they can work the system. Also, having SEC oversight can result in muchstiffer penalties for the organization, so it carries and extra layer of deterrent for companies who may think about fashioning questionable decisions. Andersen themselves, in the form of managing partner Leonard Spacek, saw the power of SEC intervention early on (1947).