Author Andersen

Introduction

In today's business world, corporations could be audited due to not following ethical and legal standards. The purpose of this paper is to discuss the legal, ethical, and social responsibility of Arthur Andersen. This paper will also analyze three factors that influence Arthur Andersen's strategic, tactical, operational, and contingency planning. The term ethics must first be defined to understand a few of the issues involving Arthur Andersen. According to Wikipedia, the term Ethics is a set of principles of right conduct, a theory or system of moral values. When a corporation does not follow ethical or legal standards, they lose public respect, money, customers, and trust due to their behavior. Whether it is taking an extended lunch break or the Accountant fixing your books to overstate revenue by millions of dollars, ethics play a significant role in daily business transactions (Wikipedia, 2007).

About Arthur Anderson

Arthur Andersen LLP, was an accounting firm with an extensive history. It obtained worldwide growth and opened its first international offices during the 1950's. Furthermore, in 1979 it surpassed 1,000 partners and became the world's biggest business services firm. During 1989, it formed a separate consulting practice, from which Andersen Worldwide became the umbrella company for both firms. However, in 1997 Andersen bid for independence and finally in 2000 the split between Arthur Andersen and Andersen Consulting was agreed upon. During 2002 a potential merger with KPMG (another major accounting firm) failed.

Andersen had 85,000 employees around the world, with about 2,300 clients and $9.3 billion in annual revenues. During 2002, about 700 parted ways with the firm. Among those clients included were Kerr-McGee, Freddie Mac, Federal Express, Merck and Delta. The final day of operations for the Arthur Andersen's firm was August 30, 2002.

Factors of Impact

The future of the accounting firm mattered to senior executives and IT managers in part because Arthur Andersen also provided IT consulting services. Most of the jobs were cut in Arthur Andersen's audit and administrative units.

Arthur Andersen provided both audit and consulting services to energy trader Enron, whose accounting practices are at the center of its bankruptcy scandal. As a result of its role in the debacle, Arthur Andersen has been pelted with civil lawsuits, dumped by some of its biggest clients, hit with an ongoing U.S. Securities and Exchange Commission (SEC) investigation and indicted on an obstruction-of-justice charge by a U.S. federal grand jury.

Factors of Influence

Arthur Andersen has been found guilty in 2002 of obstructing justice by shredding documents relating to former client Enron. Enron went from being America's seventh biggest company to winning the title of biggest bankruptcy in United States corporate history. There are factors of influence that led to this organizations downfall. The factors of influence that will be discussed are; globalization, legal, and competitive influences.

Arthur Andersen faced a legal issue due to Enron's success being based on artificially inflated profits and on accounting practices that had allowed the company to hide its debts. Arthur Andersen's job was to check Enron's accounts and to make sure they were an accurate reflection of the state of the business. The auditor would have been expected to spot large scale fraud or deception. The company also carried out consultancy work for Enron, leading to accusations of a conflict of interest.

When the energy giant's business began to unravel, staff at Arthur Andersen destroyed thousands of Enron-related documents and e-mails. This happened both before and after US stock market regulators had asked for more information about the energy giant's accounts.

The competitive environment for Arthur Andersen included the rest of the "Big Six": Coopers & Lybrand, Deloitte and Touche, Ernst & Young, KPMG Peat Marwick, Price Waterhouse. In addition, management consulting firms such as Bain, Booz, Allen & Hamilton, and McKinsey were viewed as competitors for clients.

The Big Six had historically realized most of their profits from tax and audit businesses, where they performed audits for the majority of the Fortune 500 companies. However, the changing role of the chief financial officer (CFO) in most US firms provided the impetus for strategic change in the vision and mission of the Big Six. The role of the CFO had historically been one of compliance management and ensuring that the firm was not violating any SEC and other regulations. However, the new CFO role encompassed forward-thinking strategic planning in areas such as information technology, human resources, and legal and litigation services, in addition to the core of statutory audit and tax compliance. As CFOs new role evolved, the Big Six moved to offer a broader range of services commensurate with the additional CFO responsibility. This put them in more direct competition with the management consulting powerhouses of McKinsey, Booz, Allen & Hamilton, and Gemini.

Ernst & Young responded to the changing environment by conducting a large - scale intra-industry