Internal Control Essay

529 words - 3 pages

Introduction:
In recent decades, there has been a rising focus on management corporate behaviour, ethical responsibilities, and internal controls due to the increasing number of corporate fiascos. The Arthur Andersen scandal was one of many conducted worldwide and an example of how things can go wrong in the public sector. This report will briefly describe the Arthur Andersen scandal, analyze the major failure elements that led to the scandal, and finally provide recommendations that could have been implemented to prevent these issues.
Overview, Issues, and Recommendations:
The Arthur Anderson Scandal was mainly related to Enron’s scandal and fallout. The accounting firm was responsible for completing the audited financial statements of the company and was convicted of obstructing justice, after it shredded documents relating to Enron’s Audit and scandal.
Many fiascos led to Andersen’s fallout. This included ...view middle of the document...

o Supervision and Authorization of operations and transactions
 Low level of supervision and monitoring for partners ethical decisions.
Carl Bass, head of professional standard in Arthur Andersen made some notes on Enron’s financials that were overlooked by the partners responsible of Enron’s Account.

- Dysfunctional behaviour of corporate managers:
o Management Issuing orders to dispose of and shred audit documents
o Managing partners making unethical decisions to increase profitability. (overlooking the interests of various stakeholders)
Arthur Andersen’s could have implemented preventative measures to hinder possible failures and fiascos. Some of the possible counter measures and recommendations are:
- Setup a code of ethics and compliance, and promote programs that instill values and integrity in employees and partners.
- Assign an experienced individual in each office to resolve ethical issues and give decision making power to individuals not involved with the mere profitability of the organization (e.g. carl bass)
- Clearer Segregation of duties and division autonomy to eliminate conflict of interest.
- Guidance and office code on the Retention of client records and files.

Conclusion:
In conclusion, Arthur Andersen was involved in one of the biggest scandals worldwide. As an accountable audit firm, it had a responsibility to protect its stakeholder’s rights, which it wasn’t able to fulfill. This in return caused a huge damage to its reputation and operations. The firm could have prevented such actions by implementing stronger internal ethical controls.

References

“How (Un) ethical Are you?” Mahzarin R. Banaji, Max H. Bazerman, and Dolly
Chugh, Harvard Business Review, December 2003, pp. 56-64

“Ethics,” CMA Canada (CMA Online Library)

Provincial CMA Professional Code of Conduct

“Arthur Andersen: An Accounting confidence crisis”, Daniels fund ethics initiative, University of New Mexico http://danielsethics.mgt.unm.edu

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