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    • #6923
      Bev CochraneBev Cochrane
      Participant

      There were three possible groups who could have prevented this. The first was management, which could have adopted better accounting practices. Unfortunately, once management bought into the belief that the function of a corporation is to reward upper management, rather than to maximize the profit for the shareholders.
      The second group that might have stepped in was the independent auditors. However,they made much more money from consulting than they did from the audit.
      The third group was US government/congress role as regulators – they did nothing.

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    • #7145
      Louis-H. CampagnaLouis-H. Campagna
      Participant

      At least, the US Government did eventually pass the SOX Act. An impressive piece of bipartisan legislation from the W. Bush White House:

      “The act was approved in the House by a vote of 423 in favor, 3 opposed, and 8 abstaining and in the Senate with a vote of 99 in favor and 1 abstaining. President George W. Bush signed it into law, stating it included “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt. The era of low standards and false profits is over; no boardroom in America is above or beyond the law”
      — from wikipedia, https://en.m.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act, paragraph 6

      How improbable might such legislation sound today in contemporary Washington D.C.!

      • This reply was modified 1 year, 1 month ago by Louis-H. CampagnaLouis-H. Campagna. Reason: Corrected typo
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    • #7364
      Les EllsworthLes Ellsworth
      Participant

      Arthur Andersen was one of the most respected auditing firms. When the focus became more on consulting than auditing they started a downward trend that led to their demise. Services became a priority over audit quality. In 1994 two thirds of Anderson’s $3.3 Billion profits came from the consulting side. There was little or no standards until, the Sarbanes-Oxley Act came into effect (after the demise) that could have prevented the failure. When greed becomes more important than the interest of the investors, the organization will fail and I believe this was the case of Arthur Anderson.

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    • #7365
      Les EllsworthLes Ellsworth
      Participant

      Same as above

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    • #7369
      Shelley ProctorShelley Proctor
      Participant

      I feel the same way. As the focus changed from auditing to consulting the downward spiral began. Could management change what was happening, maybe. It would of taken a lot as management seemed blinded.

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    • #7396
      Jen BudneyJen Budney
      Participant

      Thanks for your responses, everyone. Yes, there was clearly a conflict of interest that occurred when the auditing firm began making money consulting. Many people also seem to have been operating under the impression that it was imperative the firm maximized profit for its shareholders – when this is not a legal requirement at all. And the incentives built in for management reinforced this notion…

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    • #7425
      Dianne BrownDianne Brown
      Participant

      Corporate brand and long earned respect was set aside for greed and wealth. No legislation – no checks and balances in place. No one at Anderson was in charge of living the Brand so no one did and they lost there way, diminishing the feeling of belonging to a value system bigger then anything money could buy. Sometimes called entitlement. Dianne

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    • #7432
      Jen BudneyJen Budney
      Participant

      Here it might be important to think as well of the Board’s role in policy oversight, including codes of conduct. Not stated in our case summary, but published in many other stories on this case, is that the two firms, Arthur Anderson and Enron, were displaying what’s called “inappropriate and atypical” familiarity – with the employees of Anderson engaging in frequent social activities such as ski trips and charity fundraisers organized by Enron, and vice versa. As 27% of the Anderson’s auditing revenues were generated from Enron, this should have raised eyebrows – the opportunities for collusion were abundant. What role could the board have played in this case?

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