Arthur Andersen

Arthur Andersen was an American accounting and professional-services firm headquartered in Chicago. Founded in 1913 by Arthur E. Andersen and Clarence DeLany, it developed from a regional accounting practice into one of the largest multinational firms providing audit, tax, accounting, and management-consulting services to major corporations and public institutions. By 2001, it was one of the Big Five global accounting networks, alongside Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. Arthur Andersen built much of its early reputation around technical rigor, standardized work, employee training, and the principle that auditors owed their primary responsibility to investors and the public rather than to company management. Arthur Andersen promoted a culture associated with the motto “Think straight, talk straight,” and the firm became known for centralized training and consistent methodologies across offices. It served substantial corporate clients in industries including energy, manufacturing, telecommunications, financial services, consumer products, and transportation. The firm expanded beyond traditional audit and tax work during the 1970s and 1980s, as consulting became a major growth engine. Its consulting operation eventually became Andersen Consulting, a separate unit within Andersen Worldwide. Tensions over financial transfers, governance, branding, and competing consulting activities led to a prolonged dispute. International Chamber of Commerce arbitration in 2000 granted Andersen Consulting independence and required it to pay Arthur Andersen approximately $1.2 billion in previously disputed transfers, while also requiring it to abandon the Andersen name. Andersen Consulting consequently became Accenture in 2001. Arthur Andersen then adopted the Andersen name for its remaining business. The firm’s viability was destroyed by the Enron scandal. Andersen was Enron’s external auditor, and investigations found serious failures in the audit of Enron’s financial statements and related-party transactions. The firm also faced scrutiny over the conduct of personnel in its Houston office, including the destruction of paper documents and deletion of electronic records after regulators and investigators began examining Enron. In June 2002, Arthur Andersen was convicted in the United States of obstruction of justice. Although the United States Supreme Court unanimously overturned that conviction in 2005 because of defective jury instructions, the ruling came after the firm had already lost clients, employees, licenses, and operating capacity. Arthur Andersen surrendered its accounting licenses and its authority to practice before the Securities and Exchange Commission in 2002. Its United States operations were wound down, and many practices and employees moved to competing firms. The collapse was also associated with scrutiny of Andersen audits involving companies such as WorldCom, Waste Management, Sunbeam Products, the Baptist Foundation of Arizona, and Asia Pulp & Paper. The Enron and WorldCom failures contributed to the passage of the Sarbanes–Oxley Act of 2002, which strengthened public-company audit oversight, internal-control requirements, and protections for whistleblowers. Parts of the former Andersen businesses survived in new forms. Andersen Consulting became Accenture, while former Andersen partners later established or developed successor businesses including Protiviti and Andersen Tax. The original Arthur Andersen organization, however, did not meaningfully resume operations after its 2002 collapse. It remains a prominent example of how audit conflicts, client dependence, document-retention failures, and damage to professional credibility can rapidly destroy a global professional-services network.

Arthur E. Andersen was born in Illinois in 1885 and became a certified public accountant at a young age after working while attending school. In 1913, he and Clarence DeLany established Andersen, DeLany & Co. in Chicago. The partnership’s first client was Joseph Schlitz Brewing Company, and a Milwaukee office followed in 1915. After DeLany’s departure, the firm became Arthur Andersen & Co. in 1918. Andersen linked professional competence with systematic education. The firm introduced centralized training practices and emphasized instruction during normal working hours, helping create a consistent service model across offices. Andersen also promoted auditor independence and argued that accountants’ duties extended to investors and the broader public. He led the firm until his death in 1947, after which it continued expanding in the United States and internationally. During the postwar period, Arthur Andersen developed into a major corporate accounting firm. Its services included audit, tax, accounting, and advisory work for large enterprises. The firm’s methods, training, and common visual identity were intended to make client service consistent across geographies. During the 1970s and 1980s, consulting grew faster than the established audit and tax practices and became increasingly important to the organization. In 1989, the consulting and accounting operations were separated into Andersen Consulting and Arthur Andersen & Co. under Andersen Worldwide Société Coopérative. The relationship deteriorated through the 1990s over required financial transfers and competition between consulting units. Arbitration in 2000 granted Andersen Consulting independence, awarded Arthur Andersen approximately $1.2 billion in disputed payments, and prohibited the consulting business from continuing to use the Andersen name. Andersen Consulting became Accenture in 2001, while the accounting firm rebranded itself Andersen. By the late 1990s, the firm faced growing questions about whether its audit practice could remain independent while also selling lucrative consulting and advisory work to the same clients. These tensions became acute in the Enron engagement. Enron’s collapse in late 2001 exposed alleged failures involving special-purpose entities, related-party transactions, and financial reporting. A subsequent investigation also found that Andersen personnel destroyed documents and deleted electronic material after the SEC investigation began. The firm was indicted and convicted in 2002 for obstruction of justice. Although the Supreme Court overturned the conviction in 2005 because the jury instructions did not properly require proof of knowledge of wrongdoing and a connection to an official proceeding, the firm had already been commercially dismantled. It lost clients and personnel, surrendered its licenses, and sold or transferred much of its United States practice to rival firms. The collapse coincided with scrutiny of audits involving WorldCom, Waste Management, Sunbeam Products, the Baptist Foundation of Arizona, and other clients. The Enron and WorldCom crises helped prompt the Sarbanes–Oxley Act of 2002, which created stronger public-company accounting oversight and expanded requirements for internal controls and auditor accountability. Former Andersen businesses survived in successor organizations, notably Accenture in consulting, Protiviti in advisory services, and Andersen Tax in tax-related services. The original Arthur Andersen firm remained effectively defunct despite the later reversal of its criminal conviction.

1. 2005Supreme Court reverses conviction

   The Supreme Court reversed the obstruction conviction because the jury instructions were insufficient, but the firm was no longer commercially viable.

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2. 2002Firm collapses after Enron case

   The Enron investigation, criminal conviction, loss of licenses, client departures, and employee migration brought down the firm’s operating network.

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3. 2001Andersen Consulting becomes Accenture

   The consulting business adopted the Accenture name after leaving the Andersen network.

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4. 2000Arbitration grants Andersen Consulting independence

   Arbitration ended the long-running dispute and separated Andersen Consulting from Arthur Andersen.

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5. 1989Consulting and accounting units separated

   Arthur Andersen and Andersen Consulting became separate operating units within Andersen Worldwide.

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6. 1918Firm renamed Arthur Andersen & Co.

   Clarence DeLany left the partnership and the firm adopted the Arthur Andersen & Co. name.

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7. 1915Milwaukee office opens

   The firm opened its second office in Milwaukee, supported by Andersen’s connections with the brewing industry.

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8. 1913Firm founded in Chicago

   Arthur E. Andersen and Clarence DeLany established Andersen, DeLany & Co., the predecessor of Arthur Andersen.

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A global, high-end accounting and professional-services network serving large corporations, with a historic emphasis on audit quality, standardized training, and professional independence.

• Audit and assuranceAccounting and assurance

  Arthur Andersen’s core historical business was auditing financial statements and providing related assurance services to large companies. Its audit practice operated across multiple industries and was central to the firm’s reputation, regulatory status, and relationships with public-company investors. The Enron engagement ultimately made the limits of the firm’s audit controls and independence a central issue in its collapse.

• Tax and accounting servicesTax and accounting

  The firm advised corporate clients on tax compliance, tax planning, accounting policies, and financial reporting. These services complemented audit engagements and formed one of the firm’s principal professional-service lines before the organization was dismantled in 2002.

• Management consultingConsulting

  Consulting became a major growth area during the 1970s and 1980s, covering management, systems, technology, and business-process advice. The consulting operation was separated from the accounting practice in 1989, became independent through arbitration in 2000, and was renamed Accenture in 2001.

• 2002Wind down United States operationsStrategy

  The Enron conviction and resulting regulatory consequences made it difficult for the firm to continue auditing public companies.

  What changed. Arthur Andersen surrendered its CPA licenses and SEC practice rights and transferred or sold substantial portions of its United States operations.

  Aftermath. The firm lost most of its clients and employees and became effectively defunct, while successor businesses and former partners continued in separate organizations.

  • KPMG — KPMG acquired or absorbed portions of former Andersen practices and personnel.
  • Ernst & Young — Ernst & Young took on portions of former Andersen operations and employees.
  • Deloitte — Deloitte was among the firms receiving former Andersen business and personnel.
  • Grant Thornton — Grant Thornton was among the accounting firms involved in taking over parts of Andersen’s former practice.
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• 2000Accept arbitration outcome in consulting disputeM&A

  Andersen Consulting and Arthur Andersen had spent most of the 1990s in a dispute over transfer payments and the creation of competing consulting operations.

  What changed. Arbitration granted Andersen Consulting independence, awarded approximately $1.2 billion in disputed payments to Arthur Andersen, and barred the consulting business from using the Andersen name.

  Aftermath. Andersen Consulting became Accenture, while Arthur Andersen retained the Andersen branding for its accounting business.

  Disputed payments awarded to Arthur Andersen. Approximately $1.2 billion (2000)

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• 1989Separate consulting from accounting operationsStrategy

  Consulting was expanding more quickly than the firm’s traditional audit and tax practices, while conflicts between audit independence and advisory growth were becoming more significant.

  What changed. Arthur Andersen and Andersen Consulting were organized as separate units under Andersen Worldwide.

  Aftermath. The separation did not resolve disagreements over economics, governance, branding, and competing consulting businesses.

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• 2002Broader audit-failure scrutinyControversy

  The Enron case brought renewed attention to Andersen audits involving WorldCom, Waste Management, Sunbeam Products, the Baptist Foundation of Arizona, and Asia Pulp & Paper, among others.

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• 2001Enron audit and document-destruction scandalControversy

  As Enron’s accounting fraud became public, investigators criticized Andersen’s audit work concerning special-purpose entities and related-party transactions. Andersen personnel in Houston also destroyed documents and deleted electronic records after regulatory scrutiny began. The episode led to criminal proceedings, loss of licenses, and the collapse of the firm.

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• 2005U.S. Supreme Court overturns Arthur Andersen conviction

  The Supreme Court unanimously reversed the obstruction conviction, holding that the trial judge’s jury instructions were legally inadequate.

  Lawsuit
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• 2001Andersen Consulting adopts the Accenture name

  After losing the right to use the Andersen name, the independent consulting business began operating as Accenture.

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• 2000Andersen Consulting wins independence from Arthur Andersen

  International Chamber of Commerce arbitration separated Andersen Consulting from Arthur Andersen and required payment of approximately $1.2 billion in disputed transfers.

  M&AOther
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1. Arthur Andersen
2. Arthur Andersen LLP v. United States
3. Accenture
4. Sarbanes–Oxley Act