Unit 1 Project
Separation of Consulting and Auditing Firms Independence is a critical component of being able to successfully audit a company. An auditor loses independence when focus lies on the company and not working separate from the company. This was the case of Arthur Anderson and the organizations involvement with Enron as an auditory and a consultant. The Enron case shook up the financial market and caused many investors to question the accuracy of financial statements. The fear brought many negative affects to the finances of companies and to the areas of auditing and consulting. Shareholders of many successful companies were now aware of how auditing and consulting led to a conflict of interest and were demanding that organizations address these concerns through the separation of auditing and consulting. Although these shareholders had the right intentions, the split requires further analysis to understand the implications of the Enron and Arthur Anderson relationship and the benefits and drawbacks to having one firm providing both auditing and consulting services.
Events Leading to Separation Arthur Anderson’s contributions to the Enron disaster began with the change of focus of Arthur Anderson from unquestioned accounting ethics to generating income (Brooks, 2007). When one focuses primarily on making money other considerations become so unimportant that they rarely, if ever, enter the picture. From this initial change in Arthur Anderson’s thinking it was a small step to overlooking the obvious faults inherent in Enron. It was an even smaller step to taking the word of upper management as factual and not questioning the legality of the many accounting transactions which were having such a beneficial effect on Enron’s financial statements.
The primary motivation behind Arthur Anderson’s decisions had nothing to do with public interest and