Week Two Learning Team Reflections
Fadumo Warsame, Firas Faraj and John Mercado
FIN 771
June 2, 2014
Alfonza Darnell
Week Two Team Reflections
This week objectives were focused on the ethics case, "A Sad Tale: The Demise of Arthur Anderson".
Author Anderson accounting office or company established in 1918 by Author Anderson he was a very knowledgeable man. The company culture was based on “Think straight and talk straight” that it is based on ethic. The biggest mistakes that the Anderson’s company had mixed between the consulting and the audit and these two parts have a big conflict of interest. Based on that the way to prevent of falling the company should of follow the way that how this company established based on the “think straight talk straight” this should of be a part of these people code of conduct, the audit and the consulting should be separated. The other mistake was that Author Anderson had their employees as Eron’s Employees and that itself is conflict of interest and what should been taken place is to give the employees the right direction and not mix between the cultures. Mixing between the cultures make the employee confuse about the goals, and roles.
This story had presented how profits would change standard of practice. The Anderson accounting company went from one of the best accounting auditors firm to sales company selling their services and product in exchange of cooked books. It had pressured its employees to be salesmen and pushed them to boost profits. They had to please their customers instead of making sure the accounting books are correct and looking out for the public investor. They had got rid of old accountants and pushed them to retire and got new account to be easily manipulated and influenced. In this new era, no one believed on company standard and believed it was on paper only. This had resulted in several companies to collapse such Boston Chicken, Sunbeam and Enron. They had involved in risky business plan and behavior that would be stopped and caught on time if the accounts had looked closely in their financial statement. The executives had changed their standard from protecting the company’s reputation as one of the best accounting firm to making profit and sales (Brown, K & Dugan, 2002).
In the ethic case of Arthur Andersen, there were few mistakes that the company made that led into its failure, including conflict of interests between its auditing and consulting practice Auditing was the main business of Arthur Andersen. However, consulting became more profitable than auditing, which led to some conflicts. “At the heart of the problem was how to divide up the earnings from the consulting practice among two groups” (Parrino, Kidwell, & Bates, 2012, p. 122). First of all, the practices should have been separated. As a business organization, there has to be a system or a policy on how to divide earnings between departments. In addition, consulting clients should not be audit clients at the same time. The job of auditors is to audit, and not to sell consulting practice. This is definitely a conflict of interests between the groups, in which eventually contributed to the failure of the company.
References
Brown, K & Dugan, I (2002, June 7). Arthur Andersen"s fall from grace is a sad tale of
greed and miscues. Retrieved from http://online.wsj.com/news/articles/SB1023409436545200
Parrino, R., Kidwell, D. S., & Bates, T. W. (2012). Fundamentals of corporate finance (2nded). Hoboken, NJ: Wiley.