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Arthur Andersen's Fraudulent Accounting Practices

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Before founding Andersen, Delany & Co in Chicago, in 1913, Clarence Delaney and Arthur Andersen worked together in Price Waterhouse. In 1918 Delany left and the firm changed its name to Arthur Andersen. In the 1930s the federal government enacted new laws requiring public companies to submit their financial statements to an independent auditor every year. The firm experienced rapid growth due this new law. During the following decades of practice the accounting firm grew to become one of the “Big Five.” This prestigious tittle voiced the fact that Arthur Andersen had become one of the largest accounting firms in the United States. The name Arthur Andersen was globally respected. The firm stood representative of confidence, integrity, and ethics in accounting. This stellar reputation was vital to its success. (Squires, 2003)
In the 1950s Andersen launched a consulting business that nearly immediately experienced colossal and explosive growth as global demand for …show more content…

Andersen’s audit of Sunbeam’s financial statements failed to address numerous fraudulent accounting practices by the company. In fact, The Securities and Exchange Commission accused Arthur Andersen, of authorizing clean or “unqualified” opinions on Sunbeam’s 1996 and 1997 financial statements in spite of awareness of many of Sunbeam’s accounting and disclosure improprieties (Icmrindia.org, 2015).
• The Securities and Exchange Commission filed a case against Waste Management. The case charged Waste Management with executing a massive financial fraud over a significant period of time. According to the filing, senior management at the company engaged in accounting malpractices and violations of federal securities laws to overstate earnings by $1.4 billion dollars. In the case, Andersen was accused of assisting the fraud by continually issuing unqualified audit opinions on Waste Management’s materially erroneous financial statements (Sec.gov,

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The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.

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This proves that throughout the case, Cendant Corporation wasn’t acting fully ethical nor with the desired fiduciary actions to their investors and the auditing team in this case being Ernst&Young. Aside from the trust being broken apart between both, there was never a sign of an internal control inside Cedant. Therefore, there shows that the corporate governance for Cendant Corporation didn’t have signs of existence as well. Most frauds that were occurring before the implementation of the SOX-2002, had top management such as in Cendant that didn’t have care for the ethical performances as much as in today’s corporate world with more regulations in hand by the government. At the end, Cendant had filings against them concerning their corporate governance

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