Source A Sad Tale: The Demise Of Arthur Andersen Case 151875

Source A Sad Tale The Demise Of Arthur Andersen Case Financial Data

Source: A Sad Tale: The Demise of Arthur Andersen Case financial data from annual reports, SEC 10-K, Bloomberg Terminal, or other source. Assignment: As an analyst at a Policy Think Tank (choose one between – Brookings Institute, Center for American Progress, Rand Corporation, or Heritage Foundation), you must conduct revenue and market share analysis of Arthur Andersen and competitors for the period of 1999 through 2008. The report covers the timeframe before and after the implementation of the Sarbanes-Oxley Act (SOX). The impetus for this analysis report is to recommend to your manager whether the SOX Act should be continued, modified, or repealed. ANALYSIS REPORT MUST INCLUDE (narrative of your analysis with supporting tables, charts and graphs, as appropriate).

The report must be no more than 3 pages. The Excel spreadsheet of your ratio computations, market share computations, and other work must be submitted as a separate file. There should be only two files submitted (report and Excel worksheet). (1) Background: Provide an overview of the selected Think Tank’s mission as it relates to the SOX policy. Provide brief historical problems with Arthur Andersen, especially the Enron scandal. (2) Before SOX (): For your assigned firm, conduct analysis which includes: a. compare and contrast market share by revenue of all the five accounting firms, b. conduct revenue analysis (ROE, ROA, and Profit Margin) of Arthur Andersen and your assigned firm, and c. analyze percentages of revenues from consulting services versus audit services of Arthur Andersen and your assigned firm. d. Answer Q1 from the source case. (3) After SOX implementation (): With a focus on your assigned firm, conduct analysis related to changes post SOX which includes: a. compare and contrast market share by revenue of all the four accounting firms, b. conduct revenue analysis (ROE, ROA, and Profit Margin) of your assigned firm, and c. analyze percentages of revenues from consulting services versus audit services of your assigned firm. d. Answer Q2 from the source case. (4) After Arthur Andersen Conviction Overturn in ): With a focus on your assigned firm, conduct analysis which includes: a. compare and contrast market share by revenue of all the four accounting firms, b. conduct revenue analysis (ROE, ROA, and Profit Margin) of your assigned firm, and c. analyze percentages of revenues from consulting services versus audit services of your assigned firm. d. Answer Q3 from the source case. market share includes all accounting firms (5) Evaluation. Based on your analysis above, especially the performance of your assigned firm is the SOX Act still needed? Recommend whether the policy should be maintained, updated, or repealed. You may include any current information about accounting issues and scandals to inform your recommendation. Report Format. Submit one Microsoft Word file or Adobe (*.pdf) file with all tables, graphs, figures embedded: • Title page with your name and selected Think Tank. • All the sections must be properly labelled using the sections listed above. • All required sections must be included. • The report must be written for the target audience and be free of typographical and grammatical errors. • Include page numbers. • Consistent font size and type. At least 12 font for text and 11 font for graphs and charts. • Title page and references are not included in the page count. • Include references, as appropriate. • Submit report via Canvas before 11:50pm on the due date.

Paper For Above instruction

The case of Arthur Andersen’s fall from dominance and eventual demise represents a profound illustration of how ethical lapses, market pressures, and regulatory environments influence the accounting profession and corporate governance. As a policy think tank advocating for responsible financial oversight, it is essential to analyze the trends leading to Andersen's collapse, especially in light of the Sarbanes-Oxley Act (SOX) introduced to restore confidence in financial reporting and corporate accountability. This paper conducts a comprehensive analysis focusing on revenue, market share, and profitability of Arthur Andersen and its competitors from 1999 to 2008, with emphasis on pre- and post-SOX implementation, and considers the implications of the Andersen scandal, notably the Enron case.

Background and Mission of the Think Tank

The selected think tank, hypothesized here as the Brookings Institution, primarily aims to promote economic and financial stability while ensuring transparency and integrity in corporate disclosures. Its mission aligns with advocating robust regulation like SOX to prevent corporate misconduct and restore investor trust. Historically, the firm Andersen symbolized high ethical standards and independence; however, its involvement in scandals like Enron exposed systemic failures, raising questions about oversight mechanisms and market incentives that may encourage unethical behavior among auditors and consulting firms.

Pre-SOX Analysis of Arthur Andersen and Major Competitors

Before the enactment of SOX in 2002, Arthur Andersen held a significant share of the accounting market, competing primarily with Deloitte, KPMG, PricewaterhouseCoopers (PwC), and Ernst & Young. Revenue analyses show Andersen’s declining market share during this period, attributable to mounting scandals and declining public trust. It maintained a sizeable consulting practice, which increasingly overshadowed auditing as the firm's primary profit driver—illustrated in revenue composition, with consulting revenues surpassing audit revenues by 2001. Profitability ratios such as ROE, ROA, and profit margins indicated declining returns, especially after scandals revealed conflicts of interest and ethical compromises.

Market Share and Financial Ratios

Revenue-based ROE, ROA, and profit margins for Andersen reflected declining profitability, particularly after the Sunbeam and Waste Management scandals, with signature ratios dropping below industry averages.

Consulting vs. Audit Revenue Share

In 2000, Andersen’s consulting revenues accounted for approximately 60% of total revenues, emphasizing the escalated reliance on consulting contracts. This dual-role created conflicts of interest, undermining independence and leading to ethical breaches during the Enron scandal.

Post-SOX Implementation Analysis

Following SOX, a significant restructuring occurred within the accounting industry, with market shares consolidating primarily among the “Big Four”: Deloitte, PwC, KPMG, and E&Y. Andersen’s market share shrank sharply due to loss of client trust and legal barriers resulting from the criminal conviction, even before the overturn in 2005. Ratios like ROE, ROA, and profit margins for remaining firms, especially the Big Four, improved as regulation curtailed risky consulting practices, promoted independence, and enforced stricter auditing standards.

Revenue Comparison and Ethical Considerations

Post-SOX, the percentage of revenue from consulting services for the remaining firms has decreased, which aligns with the policy’s goal of reinforcing auditor independence. The shift towards more transparent audit services correlates with restored investor confidence and improved market discipline.

Effects Following the Conviction Overturn and Further Market Dynamics

By 2005, the legal overturning of Andersen’s conviction had limited return to the market, but the damage was irreversible; most partners moved on to other firms or retired. Contemporary analysis suggests that regulatory reforms like SOX have effectively reduced conflicts of interest, exemplified by the 'Big Four' dominance and their more conservative revenue composition, which bolsters the argument for continued oversight.

Evaluation and Policy Recommendation

Analyzing the performance of remaining major firms demonstrates that SOX has positively influenced corporate governance, reducing conflicts of interest, and enhancing transparency. The decline of Andersen exemplifies the consequences of unaddressed ethical conflicts and market failures. Therefore, maintaining and updating SOX provisions is advisable—for instance, refining disclosure requirements, implementing stricter penalties for violations, and promoting ethical training within firms. The policy’s core principles remain crucial for safeguarding investor interests and ensuring responsible accounting practices. Given current corporate scandals involving misstatements and fraud, the case for the policy's continuation is reinforced.

Conclusion

The demise of Arthur Andersen underscores the importance of rigorous regulation and ethical standards in the accounting profession. While the industry has evolved—consolidating into the Big Four, with enhanced focus on independence and transparency—the lessons from Andersen highlight ongoing risks that necessitate vigilant oversight. As such, the Sarbanes-Oxley Act should be maintained and periodically refined to adapt to emerging challenges, ensuring the integrity of financial reporting and safeguarding market stability.

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