Case 5: " Arthur Anderson: Questionable Accounting Practices"

Case 5: " Arthur Anderson: Questionable Accounting Practices"

ANSWER QUESTION 1

Among the accounting firms of the United States, Andersen's auditing companies enjoys a remarkable position. The legal and ethical issues surrounding Andersen's auditing of companies include the following:

Andersen advised all the clients to make use of the computer system of 5 year useful life instead of ten year life considering 10 years computer systems to be more expensive technology of the time. However, the clients using the five year life computer systems faced with the challenge of higher expense and lower income.

Anderson focus was on the expansion of business neglecting the element of quality job that leads to the bankruptcy of the clients. The promotion was provided to the auditors of the firm on the basis of their huge accounts neglecting the quality of work produced by them.

Arizona's Baptist Foundation was not audited properly bringing about a bankruptcy to the organization. The foundation basically deals in real estate and the profit being earned on the investment is used as a donation for the churches. The foundation suffered from a downfall but the top management of BFA continued to receive six figure salaries.

An unqualified opinion was provided by Anderson while auditing the financial statement of Dun Beam Corporation of the year 1996 and 1997 bringing about bankruptcy to the company.

Waste Management, another company faced the situation of Bankruptcy because of the overstating of its earnings by a sum of $1.4 billion by Andersen. (Ferrell, Fraedrich, & Ferrell, 2008)

Andersen in an attempt to provide a profitable figure to the general public committed a violation of the Principle of Honesty by signing off of the Enron's accounts of questionable nature.

ANSEWER QUESTION 2

The investigative detail of the accounting practices of Andersen highlights that he has more ...