Accounting Ethics (and fraud)

Postings by Art Berkowitz on ethics and fraud. Most of them are serious, but sometimes we also need to have a little fun.

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Art Berkowitz, C.P.A. is an author, speaker, and consultant from Orange County, California. He writes ethics, fraud, and accounting courses (CPE) for accountants and other financial professionals. Art has also written a weekly online column for The Wall Street Journal and a book on the Enron debacle. To order any of his self-study courses go to

Tuesday, June 28, 2005

The Innocence of Arthur Andersen? Nothing Could be Further from the Truth

There seems to be some rush from former Arthur Andersen members and some others in the accounting profession to declare the recent ruling by the U.S. Supreme Court in overturning the conviction of Arthur Andersen in the obstruction of justice conviction for Enron as a declaration of their innocence. NOTHING COULD BE FURTHER FROM THE TRUTH.

In fact, the more we have learned, the more that should have been prosecuted.

Remember, Arthur Andersen had begun as one of the most stalwart, conservative accounting firms in the country, by a man who at the age of 27, had chaired one of the most prestigious accounting departments in the academic world at Northwestern University. The firm grew at a rapid pace to become one of the Big Eight accounting firms because people believed that the firm, and the members who worked for the firm, POSSESSED THE HIGHEST INTEGRITY.

They were prosecuted and fell, not because of Enron, but because they had forgotten everything that Arthur Andersen stood for. I do not question whether the judge in the obstruction case exceeded his authority in the instructions he gave the jury. I leave that for legal debates in law school and for future text books. I do question any connection between overturning the conviction of Arthur Andersen, the firm, with any concept of innocence.

Because what the FIRM did at Enron was just the tip of what they did at WorldCom, Waste Management, Sunbeam, Global Crossing, and Baptist Foundation of Arizona. What the FIRM did at Enron was an assault on every honest accountant in the profession. It was not just a breakdown by a few individuals, but an entire firm that had encouraged aggressive behavior by their partners and employees in order to maximize profits.

No other firm gave their partners the right to override their national technical department when issues of integrity arose.

No other firm shredded documents in anticipation of a SEC order – not at one office, but at several.

No other firm tried to justify at their trial a training video where partners told new staff that it was O.K. to shred documents until the firm received a formal subpoena, although their own internal documents expressly forbid it.

No other firm ignored repeated warning from the SEC as to their lack of management control.

The NCAA issues the death penalty to athletic departments when they have determined that the university has lost institutional control. Arthur Andersen, the FIRM, had lost institutional control.

What Arthur Andersen did to the accounting profession will take years to overcome. But perhaps what Enron and Arthur Andersen did for (or to) the investing public with the passage of Sarbanes-Oxley may take even longer to reestablish the balance in what the public wants and needs and accountants are able to deliver in a reasonably economical fashion.


Blogger Ed Estrin, CPA said...

So the big question is as a Ca CPA do I need to practice in Ill. to do a tax return for a Ca residence with some investment in Ill. that causes a return to be filed?

2:59 PM  

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