Arthur Andersen Essay

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INTRODUCTION This paper will examine the affect of the aftermath of Arthur Andersen’s collapse on the market share for accounting services. Specifically, this paper will examine when Arthur Andersen’s clients began to migrate from the firm, and what accounting firms they decided to retain. It will also attempt to determine what weighed in clients’ decisions to change auditors after the Enron scandal became public. How loyal are clients to their auditor? Will clients stay steadfast with their auditor through obstruction of justice charges, waiting to change auditors until their primary auditor is convicted? Will clients abandon ship at the first hint of scandal? Where will they turn? Will clients select one of the largest accounting firms, one of the presently designated “Big 4”? Will clients instead shy away from a larger firm, after being associated with a firm that is involved in such an affair? These questions will be examined thoroughly in the following pages. Questions 1. When did clients leave Arthur Andersen: a. When the scandal was announced? b. During the trial? c. Post-conviction? 2. Did clients favor one auditor over others when switching? 3. Did clients prefer retaining major accounting firms, the “Big 4”, over smaller firms? 4. Did companies from the same SIC, or industry, code favor certain auditors? 5. What is likely to put a firm out of business: - a high profile client being caught in a scandal? - - a charge filed against them? - a conviction? HYPOTHESIS When the Enron scandal was initially publicized, most clients likely blamed Enron, rather than Arthur Anderson—Enron’s auditor. It is unlikely that many would leave an auditor because another one of its clients committed fraud. Other auditors did not see such a large migration of clients leave after accounting scandals. For example, Ernst & Young did not experience a collapse

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