aurther anderson involvement in enron scam

8/14/2019 Aurther anderson Involvement in Enron scam

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Team Members1. Ambalika Handoo

2. Janhavi Joshi

3. Sonam Khanchandani4. Chetan Kirtane

5. Kanchan khaladkar

6. Radhika kolhatkar


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INTRODUCTION Type Limited Liability PartnershipFounded 1913

Headquarters Chicago,Illinois,USA

Accounting

Professional servicesIndustry Tax

Consulting

Licenses of certified publicaccountants

surrendered in 2002.

Products Professional services


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Continue

Revenues US$9.3billion(in 2002)

Employees approx.200 as of 2007

Website www.andersen.com


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Cont

Arthur Andersen LLP,based in Chicago, was one ofthe big Five accounting firms amongPricewaterhouseCoopers,Deloitte toucheTohmatsu,Ernst & Young and KPMG providingauditing,tax,and consulting services to large

corporations.

In 2002,firm surrendered its license to practice asCPA in US after being found guilty of criminal charges

relating to the firms handling of auditing of Enron, asenergy corporation based in Texas resulting loss of85,000 jobs.


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HISTORYArthur Andersen (1885-1947)Arthur Andersen and Clarence Delany, both from

Price water house, bought out the audit companyof Illinois to form Andersen ,Delany & Co which

became Arthur Andersen & Co in 1918Andersen Consulting split from the parent in 1989

to become the largest consulting firm in the worldand was renamed as Accenture on 01 Jan 2001.

He graduated from Kellogg school at northwesternuniversity after attending courses at night whileworking full time.
http://www.rothcpa.com/archives/misc/arthur.jpg


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Cont..

He created the professions first centralizedtraining program and believed in training duringnormal working hours.

He was also chairman of the board of CertifiedPublic Accountant examiners Illionis.

While practising accounting he was alsoassociated with Northwestern university as a

lecturer and then professor.


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REPUTATIONAndersen headed the firm until his death in 1947 was a supporter of high standard in

the accounting industry.

A stickler for honesty, he argued that accountants responsibility was to investors, nottheir clients management.

Leonard Spacek,who succeeded Andersen continued this emphasis on honesty.

Andersens motto was think straight and talk straight.

In 1990s Andersen had succeeded in tripling the per share revenues of its partners.


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Andersen Consulting and Accenture

The consulting wing of firm became increasinglyimportant during 70s and 80s .

In 1989,arthur Andersen and Andersen Consulting

became separate units of Arthur Andersen SocietyCooperative(wordwide)

In August 2000 the conclusion if the InternationalChamber of Commerce granted its Independence but

awarded as US$1.2 billion and its name is now Accenture


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Founded Omaha, Nebraska, 1985

Headquarters Houston, Texas,

Revenue $101 billion (in 2000)

Employees approx. 22,000 in 2000approx. 0 as of 2008.


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Formed in 1985,when

Internorth bought HoustonNatural Gas.

The company initially nameditself "HNG/InterNorth Inc."

Former HNG CEO Kenneth Layto become the next CEO of thenewly merged company.

Originally selected the name

"Enteron.Enron was originally involvedin transmitting and distributingelectricity and natural gas

throughout the United States.


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By 1992, Enron was the largest merchant of naturalgas in North America.

The creation of the online trading model, Enron

Online.

By 2001, Enron had become a conglomerate that

both owned and operated gas pipelines, pulp andpaper plants, broadband assets, electricity plants,and water plants internationally.


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Became world's leading electricity, natural gas, pulpand paper, and communications companies, with

claimed revenues of nearly $101 billion in 2000.

Fortune named Enron "America's Most InnovativeCompany" for six consecutive years.

Enron, the large energy corporation, has been aclient of Andersens for 16 years up until Enrons2001 bankruptcy.


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ENRON SCANDAL


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How did the collapse

begin?Change in Policies for Energy Companies By

the Government in the Yr.1996

Jeff Skillings Plan Use of Internet

90% of Enrons income came from trades


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Impact of Enrons rapid growth

Money to Invest

Creation Of Partnerships (Condor and

Raptor)

Fuzzy Numbers

By December 2000, Enron claimed to havetripled its profits in two years.


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Sherron Watkins, the Enron

Whistleblower


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On October 22nd, The Securities andExchange Commission (SEC) announced thatEnron was under investigation

Stock prices began to fall, as investors were

uncertain about the companys stability. 8th November, The Company declares about

its overstated earnings


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December 2001, Enron filed for chapter11 bankruptcy

Its share price had collapsed from about$95 to under $1.

Loss of$11 billions.


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TIMELINE OF SCANDAL

Summer and fall of 2001: Foresaw government litigations and

investigations against Andersen and Enron

October 16th,2001:

Enron issued a press release announcing thecompanys $618m net loss for the 3rd quarter of2001

On the same day, Enron reduced shareholdersequity in the stock and the stock price

plummeted.


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October, 2001:

Enron informed Andersen to destroy all paperdocuments and emails concerning Enron

Shortly after, the SEC started an investigationof the two companies.Lawyers defending Arthur Andersen argued

that shredding documents was a routine

practiceEventually, Andersen was charged with

obstruction of justice for destroying thedocuments before the collapse of the energygiantAugust 31, 2002 :

Surrendered its CPA licenses and its right topractice


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DOMINO EFFECTWhat is DOMINO effect?

Domino effect in ArthurAndersen case


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BREATHERBasic strategy:

1)Balance sheet with many intellectual assets likepatents and trademarks

2)Most of the debts and tangible assets of thecompany on the balance sheets of partnerships

Shannon Adlongs confessionCorrupt persuasionSerious flaws in the jury instructions-Chief

Justice William RehnquistSettled investor claims without

acknowledging any fraud on its part


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Sale of American operations: KPMG, Deloitte & Touch, Ernst & Young

and Grant Thornton LLP

Ownership of the partnership:Omega Management I through IV

Current scenario:As of 2009, Arthur Andersen LLP has not

been formally dissolved nor has it declaredbankruptcyChicago with 200 employees

SARBANES OXLEY ACT


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SARBANES-OXLEY ACT2002Created by US Senator Paul Sarbanes (D-Maryland)

and US Congressman Michael Oxley (R-Ohio)Signed into law July 30, 2002.Most dynamic securities legislation.In response to the Arthur Anderson, Enron and

WorldCom debacle, the Sarbanes-Oxley Act seeks to:Restore the public confidence in both public accounting

and publicly traded securitiesAssure ethical business practices through heightened

levels of executive awareness and accountability


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The legislation is wide-ranging and establishesnew or enhanced standards for all U.S. publiccompany Boards, Management, and publicaccounting firms.

The most important part of the Act establishes a

new quasi-public agency, the Public CompanyAccounting Oversight Board, which is chargedwith overseeing and disciplining accounting firmsin their roles as auditors of public companies.


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Some of the major provisions of the Sarbanes-OxleyAct's include;

a) Certification of financial reports by chief executiveofficers and chief financial officers. Auditor independence,including outright bans on certain types of work for auditclients and pre-certification by the company's AuditCommittee of all other non-audit work.

b) A requirement that companies listed on stock exchangeshave fully independent audit committees that oversee therelationship between the company and its auditor.

c) Significantly longer maximum jail sentences and larger

fines for corporate executives who knowingly and willfullymisstate financial statements.


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CONCLUSION

Due to the downfall of Arthur Anderson, itlost nearly all of its business and clients.

It lost not millions but billions of dollarsdue to this intense investigation.

Arthur Anderson's motto of "Think straight,talk straight" has forever been tainted inthe eyes of Americans corporations.

Anderson's involvement in the scandalbrought the ethics of accounting firms intoquestion.


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Enron?YesRecent years have seen an increase in the number

of financial statement frauds 1977-87 (300); 1987-1997 (300); 1997-2002 (over 300)

Incentives still there (Stock Options, etc.)

NoSarbanes-Oxley Bill contains many key provisions Executive sign off Requirement to have internal controls Rules for accountants (mandatory audit partner rotation;

Oversight Board, limitations on services, etc.)Accountants are being much more careful

aurther anderson involvement in enron scam

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