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Journal of Business Ethics Education 1(1): 91-130.

© 2004 NeilsonJournals Publishing.

From Grace to Disgrace: the Rise & Fall

of Arthur Andersen

N. Craig Smith and Michelle Quirk

1

London Business School

Abstract. In June 2002, Arthur Andersen LLP became the first accounting firm in history to be

criminally convicted. The repercussions were immense. From a position as one of the leading

professional services firms in the world, with 85,000 staff in 84 countries and revenues in excess

of $9 billion, Andersen effectively ceased to exist within a matter of months. Although

Andersen’s conviction related specifically to a charge of obstructing justice, public attention

focused on the audit relationship between Andersen and its major client, Enron Corporation,

particularly the actions (and inactions) that had allowed Enron to post spectacular year-on-year

earnings and profit growth. As well as examining events leading up to the demise of Andersen,

the case provides an opportunity to consider the broader controversy over accounting and

corporate governance practices and, more generally, the pressures found within organisations

that can foster unethical conduct. The case was prepared from public sources.

Keywords: accounting ethics, auditing, conflicts of interest, normative ethics, ethical decision

making, corporate governance, auditor role and responsibilities.

1. Introduction

On 15 June 2002, Arthur Andersen LLP (“Andersen”) made history by

becoming the first accounting firm to be convicted of a felony when a United

States district court jury found the firm guilty of obstruction of justice. The

conviction related to events that had taken place between October and

November 2001, both prior to and immediately following notice of an

impending Securities & Exchange Commission (“SEC”) investigation into

Andersen’s former star client Enron. These events included:

1.

Michelle Quirk, MBA (Dist.) prepared this case from public sources...