But it was Enron's envelope, not Andersen's. … Here’s 5 Things You Need to Be Thinking About, An Examination of Professional Ethics in Retrospect: The Enron/Arthur Anderson Scandal. This means avoiding any situation where your work for one client can impact another client. More to the point, saying Andersen failed to warn the Enron board implies that the board needed warning. Having relinquished its right to act as CPAs, the company was effectively dead. This was a routine, required meeting consistent with our policies and practices," the firm said in a statement. It should go without saying that you only want to work with companies operating within the parameters of their own internal controls. Furthermore, 18 U.S.C. But as the various investigations into the Enron Affair unfold, the accountants could return the favor. Review of Sidney Powell’s “Licensed to Lie”, KAFKA’S “THE TRIAL” COMPARED TO EBS TRIAL. When the scandal broke, the worl… Andersen can be faulted for not telling Enron "Stop!" If it did, that warning could have come from Fastow; from JeffreySkillingJeffrey Skilling, Enron's CEO at the time; from countless others; or from Lay. Post was not sent - check your email addresses! There are countless takeaways from the Enron scandal and subsequent downfall of a near-century-old accounting institution for today’s accountant. Using the American Institute of Certified Public Accountants’ (AICPA) AICPA Code of Conduct, we’ll highlight just a few of the areas where Arthur Anderson failed: Integrity among CPAs is not as clearly defined as other points; instead, it is best defined as doing what is ‘right’ – both ethically and technically. What Did Arthur Andersen Do Wrong, Exactly? Any defendant engages in a wide range of conduct to limit information; that is one of the reasons that our legal system is frequently described as “adversary” and not “Hello Kitty and Barbie Play A Happy Game Of Prosecution and Rainbows.”. Some of the best witnesses against Enron may come from Andersen. No witness at trial said they were told by the company that the purpose was to keep materials from the SEC. EnronSpecial Report: Enron's Endgame"While we had been willing to give Andersen the benefit of the doubt until the completion of [an internal] investigation, we can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel and the disciplinary actions taken against several of Andersen's partners working in its Houston office," said KennethLayKenneth Lay, Enron's chairman and chief executive, in a statement. This tenet places the onus squarly on you, the CPA. While Arthur Andersen was not implicated in directly assisting Enron in cooking its books, the company was found to have been woefully negligent in its role of overseeing and auditing Enron’s financials. ( Log Out / You may opt-out by, EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change. Whether the existence of these partnerships, or their use to hide debts actually owed by Enron, was properly disclosed was also a topic of discussion at the meeting. The government argued that Nancy Temple’s proposed edits to David Duncan’s draft memorandum constituted criminal “witness tampering,” because in its hindsight view the SEC would have wanted to see Duncan’s first draft. Maintaining Objectivity and Independence Because your actions (or lack there of) can result in financial gain or loss, it is crucial to avoid conflicts of interest and maintain objectivity and independence. Where Arthur Anderson went wrong: The firm was aware that many of the transactions between Enron and its Special Purpose Entities were manipulated and inflated, yet they allowed the company to knowingly mislead investors. Simpson evicting Kato Kaelin because he didn't wake up and catch that prowler? The theory of this prosecution criminalized conduct commonly understood to be lawful, including the document retention policies in place at almost every American corporation or professional firm of any size. Andersen has been doing some scapegoating of its own, firing the partner in charge of the Enron engagement because he ordered the "expedited" destruction of … Born 30 May 1885 in Plano, Illinois, and orphaned at the age of 16, Arthur E. Andersen began working as a mail boy by day and attended school at night, eventually being hired as the assistant to the comptroller of Allis-Chalmers in Chicago. This conviction was secured by creative lawyering on the part of government prosecutors, at the expense of sound statutory interpretation and the basic goals and values of the criminal law. § 1512(b)(2)(A) applies only when the defendant intended to make documents or testimony unavailable to a particular official proceeding, defined as a judicial proceeding, “a proceeding before the Congress,” or “a proceeding before a Federal Government agency which is authorized by law.” Interference with the fact-finding ability of law enforcement or preliminary agency investigations is not sufficient. The partner, DavidDuncanDavid Duncan, said he acted pursuant to firm policy and the advice of its lawyers. It stood by as Enron pushed to the edge of the accounting envelope and beyond (see Enron The Incredible). The Court has recognized that there is nothing “obviously evil” or “inevitably nefarious” about acting “for the specific purpose of depriving the Government of … information”. Sorry, your blog cannot share posts by email. It did a great injustice to the tens of thousands of Andersen partners and employees who were permanently harmed by the firm’s destruction. It also means that if a gray area exists, you must use your best judgment to act with integrity. It violates the advice of Don Corleone, who said, "Keep your friends close, but your enemies closer." It violates Texas' own Lyndon Baines Johnson, who said (about J. Edgar Hoover), "It's probably better to have him inside my tent pissing out than outside my tent pissing in.". Where Arthur Anderson went wrong: The firm did not let the Enron Audit Committee know that there weren’t proper internal controls in place to protect shareholder interests. The destruction of documents was never intended to be a conspiracy to keep information from the SEC. This means consulting with others when questions arise, continuing your education, and undergoing performance evaluations. Because your actions (or lack there of) can result in financial gain or loss, it is crucial to avoid conflicts of interest and maintain objectivity and independence. Kindle Countdown Deal for Blogging Enron! Lay's protestations at this point are just sad. Where Arthur Anderson went wrong: The firm did not consider the advice of its quality control partner, Carl Bass. At the meeting, Andersen discussed "conflicts of interest" relating to AndrewFastowAndrew Fastow, Enron's chief financial officer at the time. While there is plenty of blame to go around, the prime mover in the scandal is Enron and its executives. In a related development, HarveyPittHarvey Pitt, chief of the Securities and Exchange Commission, proposed yesterday that the accounting industry should be supervised by a new group dominated by outside experts. Change ), You are commenting using your Twitter account. And the jury may well have rested its verdict on an email from Nancy Temple which “offered such common legal advice that the chairman of the American Corporate Counsel Association wrote in a letter to his members: ‘Who amongst us has not thought: There but for the grace of God go I.’. AA’s Supreme Court brief says: It is plain as day that the Government did not charge Andersen with obstruction of justice for discarding documents during the relevant time period because no official proceeding of the SEC was pending. Actually, they were indeed finished with Arthur Andersen — but Arthur Andersen wasn’t finished with them. Enter your email address to subscribe to this blog and receive notifications of new posts by email. Despite Weissman’s statement that one shouldn’t destroy documents when the police are on the way, the government did not charge Andersen with obstruction of justice for destroying documents during the relevant time period because no official proceeding of the SEC was pending. Everyone from your clients to the government to employers and investors rely on you to practice with the highest level of integrity and objectivity as to serve the public interest and maintain trust in commerce. Create a free website or blog at WordPress.com. Where Arthur Anderson went wrong: The firm approved many of Enron’s Special Purpose Entities that were then used to hide losses and generate false profits. Since the Enron bankruptcy on Dec. 2, Andersen CEO JosephBerardinoJoseph Berardino has been out front trying to save the reputation of his firm, whose reputation and very corporate existence are threatened by its Enron engagement. Where Anderson went wrong: The firm failed to make Enron’s Audit Committee aware that Enron’s CFO and his colleagues were involved in a number of conflict of interest situations. Isn't Enron firing Andersen a little like O.J. If you feel in your gut you may not be making the right move, this tenet says that you’re breaking the Code of Conduct. You must ensure that your work honors the public trust. In 2001, the Enron scandal erupted; by 2002, Arthur Anderson collapsed, and the Big Five Accounting firms became the Big Four. After the guilty verdict, government lawyer Andrew Weissmann crowed, “When you expect the police, don’t destroy evidence.” “For Andersen, the police was the [Securities and Exchange Commission].”, Leslie Caldwell, head of the Enron Task Force, also led the investigation into Arthur Andersen. But it isn’t the complete story. The Court found that the instructions were worded in such a way that Andersen could have been convicted without any proof that the firm knew it had broken the law or that there had been a link to any official proceeding that prohibited the destruction of documents. But the books and records in question were prepared first by Enron before they were certified by Andersen. It also means not allowing any other biased opinion to affect your work or the decisions you make. While Arthur Anderson’s overall role and responsibility in the Enron scandal is still argued today, the general consensus is that the ethical culture of the company was diminished and that far too many risks were taken in the interest of the bottom line.
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