Search results

The purpose of this paper is to examine how the Andersen implosion over Enron impacted Fortune 500 firms that were competitors of Enron and/or audited by Andersen. This event provides an opportunity to study various contagion effects.

An event study methodology is used to analyze the immediate financial impact of the Andersen implosion on competitors of Enron and/or firms audited by Andersen. More specifically, how did the announcement of the implosion impact these firms?

The results support a strong industry contagion effect where Enron's failure benefited the surviving energy/utility firms who could then increase their market shares. The authors find the energy/utility firms not audited by Andersen, on average, experienced an astounding 2.5 percent increase in market capitalization when the audit scandal was announced. In dollar terms, the mean and median market capitalization increases were $226 million and $101 million, respectively. In the aggregate, the 21 utility/energy firms gained $4.76 billion in market capitalization.

The results show the importance of the auditing process and the impact of unethical actions on the firm, their auditor, and their competitors. One limitation is the data are limited to large Fortune 500 firms.

This is the first study, to the authors' knowledge, that evaluates the contagion effect of the Andersen/Enron audit scandal on Fortune 500 firms: in the same industry as Enron; audited by Andersen; and operating in the same industry as Enron and audited by Andersen.

This paper aims to discuss the concepts contained in communities of practice theory (COPT) and how they might contribute to greater understanding of organizations.

The paper draws upon COPT as a means to broaden the perspective of institutional theory.

The findings provide insight into the processes surrounding organizational change. The notion of change as both intentional actions and unintended consequences is explored through a review of the case of Arthur Andersen and Company.

The study presents a historically informed case study that presents a novel theoretical approach for examinations of behavior, practices and ethics in organizations. Future work based on broader empirical examinations would enrich the findings presented in this study.

The study provides a means to examine organizations in practice and expands awareness of how behaviors in organizations evolve and might be shaped and encouraged over time.

The study introduces a novel theoretical vocabulary to the accounting academy COPT that has the potential to expand our understanding of organizations through examinations of practice.

This paper aims to investigate two issues. First, the authors test the effect of the Sarbanes–Oxley Act (SOX) on audit quality after 10 years. Second, the authors test whether it was necessary to close all of the Arthur Andersen offices due to the misbehavior of a few (e.g. the Houston and Atlanta offices).

The authors have used conservatism (Basu) as a proxy for audit quality.

The authors find that, over the long run (10 years) after SOX adoption, there is a significant positive change in conservatism as compared to during the previous similar period. In addition, the authors find that only 6 of the 20 city-level offices of Arthur Andersen were less conservative than were their other Big 6 competitors in the same city. Furthermore, the results also suggest that some city-level offices of Arthur Andersen were engaged in more conservative accounting practices than were their competitors and the Houston Andersen offices.

This study documents, using empirical evidence, that the implementation of SOX is successful, and that one factor that helped lead to this success might be the harsh punishment on Arthur Andersen.

The purpose of this study is to explore the effect of industry specialization on the absorption and competitive pricing (or lack thereof) of audits of large Andersen clients (S&P 1500 companies) who switched to the remaining Big 4 international accounting firms in 2002 due to the demise of Arthur Andersen LLP (Andersen). Did the audit clients pay a premium or discount in audit fees to their new auditor who specialized in their industry?

Ordinary least squares regression is used to test hypothesis of a positive association between industry specialization and audit fees charged to former Andersen's audit clients in 2002 following Andersen's demise. This study provides more control over size effects by design. Test variables are constructed based on national market share of audit fees within an industry. Logistic regression is used to examine the likelihood of choosing new auditor that is an industry specialist.

Results support hypothesis, consistent with auditor differentiation explanation. Proportion of clients that had engaged an industry specialist in 2001 increased from 38 percent (84 clients) to 48 percent (105 clients) in 2002. No evidence of price‐gouging in 2002 although clients who aligned with industry specialist paid a 23.2 percent premium in audit fees. Large clients lost bargaining power to negotiate lower fees. Findings are robust to the inclusion of additional alternative measures of company size.

Results of logistic regression analysis imply that large audit clients with former auditor of tarnished reputation, long auditor tenure and high leverage are more likely to switch to an industry specialist to possibly signal audit/financial reporting quality. Large sample companies may limit the ability to generalize findings to smaller companies.

Mandatory audit firm rotation (currently being debated in the profession) will have costly effect on the pricing of Big 4 audits for companies wanting to signal audit and financial reporting quality to affect market perception, and large companies would likely lose their ability to bargain for lower audit fees.

The paper focus on the alignment of Andersen clients and impact on audit fees with Big 4 industry specialists resulting from the sudden increase in audit market concentration. Prior to Andersen's collapse, evidence on the association of audit fees premium and industry specialists was mixed, and little attention has been given to the influence of auditor industry specialization on both audit fees and alignment of former Andersen clients with a Big 4 specialist. This paper fills that void.

The purpose of this paper is to examine the effect of the Enron scandal, Arthur Andersen's demise and the Sarbanes‐Oxley Act on audit fees.

The paper uses empirical methodology (univariate and multivariate).

Audit fees and the Big‐4 premium increased in 2002. Increase was larger for bigger and riskier clients. Evidence is also consistent with a competitive market for former Andersen clients.

Data requirements might bias the sample towards larger sized firms. Data availability limits the number of observations.

The research findings on audit fees in post‐Enron and Arthur Andersen period reported in this paper are important for policy makers.

It is found that the premium charged by Big 4 over non‐Big 4 has increased in 2002, and that the ability of an auditor to charge a premium is adversely affected when its reputation is tarnished. It is also reported that the frequency of voluntary switches within the Big 4 is lowest in 19 years. The audit fee model was also refined by adding two ownership variables to control for agency aspect of client firms; inside and institutional ownership.

This paper aims to provide an analysis of the choices Arthur Andersen faced in dealing with the crisis that ultimately let to its downfall in 2001-2002.

The paper is built around institutional theory. Specifically, it applies the propositions provided by Oliver (1990, 1991) to the historical record.

The failure to develop a coherent response, combined with a failure to anticipate the specific role of the state led to Andersen’s inability to navigate the institutional field.

The usual limitations of institutional theory are acknowledged. These pertain to the lack of a micro-level analysis, the additional impact of pure economic rationality and the chance that every crisis of faith is unique.

The article adds to our appreciation of what not to do in the face of crisis by the government and those in charge of large accounting organizations.

The article adds to the recently in the news “too big to fail” problem with successful economic agents.

The article adds to institutional theory by providing a different story than the usual, where everything is cleverly managed and the crisis is overcome.

This paper aims to examine whether Andersen’s audit quality in the five years preceding its collapse lagged that of other Big-Five auditors.

This paper compares Andersen’s audit quality and the other Big-Five auditors using five methodologies, namely, earnings response coefficients, magnitudes of abnormal accruals, propensities to issue going-concern opinions, usefulness of going-concern opinions in predicting bankruptcy and the frequency of Accounting and Auditing Enforcement Releases. The comparisons are based on both pooled samples of all observations and propensity-score-based matched-pairs.

The preponderance of evidence shows that Andersen’s audit quality did not differ materially in audit quality from other Big-Five auditors prior to its failure. However, it was found that Andersen’s independence was compromised in the year leading to its collapse (2000), as indicated by the lower likelihood to issue going-concern opinions.

This paper complements and improves on Cahan et al. (2011) by using more measures of audit quality, as no one measure is perfect, showing that their results using discretionary accruals are sensitive to the model used and showing that there is a more powerful direct measure of audit quality, namely, going-concern opinions.

The paper may provide policy makers with another tool for analyzing the impact of disciplinary actions against public accounting firms. It analyzes the termination of US public accounting firm Arthur Andersen using arguments developed in the capital punishment debate and develops a paradigm for examining future actions against public accounting firms. The authors reviewed major arguments for and against capital punishment and assessed their usefulness as a tool in examining the Andersen case. A paradigm was then developed to assess the propriety of the action against Andersen and possible future cases. Most arguments regarding capital punishment were applicable to the Andersen case, allowing the authors to develop a template for assessing future disciplinary actions against public accounting firms. The “death penalty”, as applied to Arthur Andersen, was justified. While corporations are “legal persons”, they are obviously not human. This weakens (or renders moot) some of the most powerful arguments against capital punishment. Furthermore, this paradigm may be less useful in societies that prohibit capital punishment. Provides a unique way of examining the impact of disciplinary action against public accounting firms.

The purpose of this paper is to examine the effects of auditor specialization, at both the partner and office levels, on audit quality within a developed market (the USA).

This study exploits the environment created when several large accounting firms purchased select Andersen offices following the firm's demise in 2002. OLS regressions were estimated from a sample of companies that assumingly followed their Andersen partner to the purchased accounting firm to examine the association between abnormal discretionary accruals and auditor specialization at both the office and partner levels.

The descriptive statistics and regression results show a significant negative relation between audit partner specialization and abnormal accruals. Furthermore, the results suggest that partner level specialization has a greater effect on audit quality than that of office level specialization.

This study contributes to the literature by examining the effects of auditor specialization at both the office and partner levels on audit quality within a developed market. The results of this study should be of interest to academics, investors, and regulators and help them in their assessments of auditor quality.

Using the ethical consequentialist theory of utilitarianism, this paper aims to demonstrate the correlation between the prosecution of Arthur Andersen LLP and the United States Department of Justice’s (DOJ) increased use of pretrial diversion agreements, both nonprosecution and deferred prosecution agreements (N/DPA) for criminal corporations.

Through an analysis of previous literature, the United States Justice Manual, and data from the Corporate Prosecution Registry, this study examines the trend of N/DPAs from 1992 to 2021. Specifically, the data is examined to assess whether a pattern exists before and after the 2002 prosecution of Andersen.

This study finds an exponential increase of N/DPAs after Andersen’s prosecution. The DOJ’s basis for the increased use of these agreements is rooted in the utilitarian theory that the punishment of criminal corporations should deter and rehabilitate behavior while also maximizing the benefit to society (e.g. shareholders, employees and business community). The justice manual, memorandums and public speeches explicitly promote the use of N/DPAs for corporations to minimize collateral damage and the potential for negative societal impact.

This study applies a utilitarian framework to explain the criminal justice system’s increased use of pretrial diversion agreements for criminal corporations.