Arthur Andersen Ethical Conflict

Arthur Andersen earned millions from Enron for services rendered in auditing and in other consulting fees; approximately $25 million for auditing and $27 million for consulting. Andersen performed auditing work internally and externally in various US cities. In 2001, significant developments led to litigations and Federal investigations of both Enron and Arthur Andersen. “On October 16, 2001, Enron issued a press release announcing a $618 million net loss for the third quarter of 2001. That same day, but not part of the press release, Enron announced to analysts that it would reduce shareholder equity by approximately $1.2 billion. The market reacted immediately and the stock price of Enron shares plummeted.” (www.news.findlaw.com, US vs. Arthur Andersen, LLP)

The Securities and Exchange Commission (“SEC”) uncovered an investigation due to negative financial information submitted by Enron. Andersen kept secret of additional information provided by Enron from the public. “The approximate $1.2 billion reduction in shareholder equity was necessitated by Andersen and Enron having improperly categorized hundreds of millions of dollars as an increase, rather than a decrease, to Enron shareholder equity.” (www.news.findlaw.com, US vs. Arthur Andersen, LLP)

An inside source; a former Arthur Andersen employee and who was and Enron employee, alleges that Enron could have possible fraud and improprieties; employed an unbalance book that enabled Enron to disguise their exact financial situation. Andersen advised Enron that it would employ an agreeable method of accounting to justify the unbalanced books. In a week’s time, Enron anticipating government investigations, alerted Andersen that the Securities Exchange Commission had begun an inquiry in regards to the unbalance books and Enron’s Chief Financial Officer involvement in the discrepancy. In response, Andersen launched a firm wide destruction of documents. Instead of keeping intact of all documentation so as to assist Enron and the SEC, Andersen employees