Free Essay On Andersen Ethical Case Study

Question 4.1

In general, audit and consultancy services market is characterized by existence of tight competition between major market players that offer similar services and whose professional fees do not vary drastically between the companies. Thus, I totally agree that to some extent market pressures may encourage unethical behavior.
Indeed, this is the case for audit and consulting firms that provide services and do not produce any goods. Thus, their clients have an opportunity to easily change a service provider if they are not satisfied with either quality of performed services or results (impact) of the performed services on their business. This fact puts extra pressure on the market players, as they cannot afford losing too many clients and, therefore, may be exposed to the unethical behavior risk.
At the same time, the audit and consulting firms are required to follow specific business standards, including an independence principle, according to which such firms are obliged to provide an independence opinion on a requested matter. The problem is that provision of such an independence opinion is still a paid service and the client of the audit or consulting firm is the one who pays for the service.
Thus, the firm’s impartiality may be affected as the client has a bargaining power and, therefore, may influence the final deliverable. Yet I strongly believe that the demise of Andersen should not be blamed on the fact that the market began rewarding consulting services. Andersen, as one of the public accounting firms, undertook to follow a set of auditor’s business principles that were aimed at ensuring the auditor’s independence. That’s why it was Andersen’s obligation to provide the services on the basis of integrity regardless the fact that the firm could earn extra income from providing consultancy services in demand.

Question 4.2

The case specifically describes two major kinds of conflicts of interest that are very typical to any audit firm providing consultancy services as well. Thus, Andersen’s ethical behavior and integrity were affected, as audit partners were required to sell non-audit services. As a result, the audit partners were too busy with fulfilling the company’s cross-selling budgets and did not pay too much attention to threats to Andersen’s impartiality. This was really severe to the business practice and, ultimately, led to the company’s demise.
Simultaneously, at the time of providing audit services, Andersen’s team could not be completely objective because it feared losing the consulting business. Thus, audit results provided by Andersen were not trustworthy and should not have been relied on. Nevertheless, users of the audited reports prepared by Andersen’s team did not know that the audit conclusion could not have been credible and relied on such a conclusion. This situation shows how serious are the kinds of conflicts of interest relating to Anderson’s practice.
In my opinion, enforcement of the Sarbanes–Oxley Act was successful and very much needed at that time, as it helped to eliminate the most serious conflicts of interest of audit firms. Thus, Sarbanes-Oxley envisaged introduction of an oversight board that was in charge for assessing compliance of the audit firms with business principles.
Sarbanes-Oxley also introduced audit partner rotation and toughened responsibility of the audit firm, as well as introduced individual responsibility of its senior management. It is obvious that all these actions were taken to ensure integrity of work of the audit firms.

Question 4.3

As it has been already mentioned, Andersen’s misdeeds had severely affected its clients’ financial position, as well as had put meaningfulness of the auditor’s opinion at risk. In this regard, I believe that the government actions were fully justified.
It is worth mentioning that the government did not aim at destroying Andersen but wanted to have fair investigation and have Andersen taking legal responsibility for his unethical actions. Nevertheless, Andersen only made obstacles during the investigation process by showing no regret with regard to its independence breach. Therefore, I think that it was Andersen responsible for destroying its business practice and not the government.