Arthur Andersen LLP used to be one of the most prestigious accounting firms around before the Enron scandal was revealed. As an auditor, Andersen was responsible for double checking Enron’s financial documents to ensure that they followed the “Generally Accepted Accounting Principles (GAAPs).” They did not. Enron had elected to hide a large portion of their debts to show a larger (made-up) profit. Not only did Andersen approve the false financial documents, the firm also shredded the evidence when the US Securities and Exchange Commission opened an investigation in late 2001.
Companies should behave ethically; however, every person within an organization should also maintain the same ethical beliefs. The entire Enron scandal occurred largely due to a lack of ethics from select individuals in positions of power. Enron made the decision to “cook the books,” and Andersen opted to turn a blind eye. A company is only as good as its people. In particular, auditing firms put their reputation on the line after every audit; so, the questionable morals of only a few had the power to completely destroy Anderson’s name. After all, an audit is useless if no one trusts the auditor.
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References used:
http://www.usatoday.com/money/energy/enron/andersen-verdict.htm
http://www.cbc.ca/news/business/story/2002/03/14/andersenindictment_020314.html