Arthur Andersen

Arthur Andersen LLP
Company type	Limited liability partnership
Industry	Accounting, auditing, tax advisory, consulting
Founded	1913 in Chicago, Illinois, United States
Founder	Arthur E. Andersen, Clarence DeLany
Defunct	2002
Fate	Firm dissolved after Enron and WorldCom scandals; consulting division became Accenture
Headquarters	Chicago, United States
Area served	Worldwide
Key people	Arthur E. Andersen (founder), Jim Wadia (CEO at time of split)
Products	Auditing, tax advisory, consulting, professional services
Number of employees	28,000 (peak before collapse) (2002)

Arthur Andersen LLP was a prominent American accounting firm headquartered in Chicago, providing auditing, tax advisory, consulting, and various professional services primarily to major corporations. By 2001, it had established itself as one of the globe’s largest multinational firms and was recognized as part of the "Big Five" accounting firms alongside Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. The firm's downfall occurred in 2002 after disclosures of dubious accounting methods linked to energy giant Enron and telecommunications firm WorldCom. These events played a significant role in prompting the enactment of the Sarbanes–Oxley Act of 2002.

Founding

Arthur E. Andersen was born in 1885 in Plano, Illinois. Orphaned at age 16, he supported himself by working as a mail carrier while attending evening classes. Eventually, he became assistant to the comptroller at Allis-Chalmers in Chicago. Balancing full-time work with night studies, he earned a business degree from Northwestern University’s Kellogg School of Management in 1908 and became Illinois’ youngest Certified Public Accountant at 23.

In 1913, Andersen partnered with Clarence DeLany to establish an accounting firm called Andersen, DeLany & Co., which was renamed Arthur Andersen & Co. in 1918 following DeLany’s exit. Their initial client was the Joseph Schlitz Brewing Company of Milwaukee, where Andersen had previously served as controller. By 1915, leveraging this connection, the firm expanded by opening a second office in Milwaukee.

Andersen regarded education as essential to advancing the accounting field. He introduced the profession’s first centralized training program conducted during standard working hours. His commitment extended to serving on Northwestern University’s board of trustees from 1927 and presiding over it between 1930 and 1932, while also chairing Illinois’ CPA examiners board.

Reputation

Leading the firm until his death in 1947, Andersen was a firm proponent of rigorous accounting standards. He stressed integrity and insisted that accountants owed their primary duty to investors rather than company management. This philosophy influenced the consistent quality of service delivered by employees known as "Arthur Androids," who ensured uniform practices across all offices. Andersen’s guiding principle, "Think straight, talk straight," encapsulated this dedication. Notably, he once refused to endorse inaccurate financial statements for a major railroad client that later declared bankruptcy.

Arthur Andersen & Co. played a pioneering role in establishing several accounting standards and was among the earliest firms to identify risks within the subprime lending market during the 1970s, subsequently distancing itself from certain risky clients.

Nevertheless, the firm grappled with tensions between upholding strict accounting ethics and accommodating clients’ pressures to maximize profits amid quarterly earnings expectations. Andersen became embroiled in multiple accounting and auditing controversies involving corporations such as Sunbeam Products, Waste Management, Asia Pulp & Paper, the Baptist Foundation of Arizona, WorldCom, and Enron.

Andersen Consulting and Accenture

Throughout the 1970s and 1980s, Arthur Andersen’s consulting division experienced more rapid growth than its traditional accounting, auditing, and tax services. In 1989, Arthur Andersen and Price Waterhouse explored merging to capitalize on economies of scale; however, talks collapsed due to conflicts of interest—such as Andersen’s relationship with IBM contrasted with Price Waterhouse’s audit role for IBM—and cultural incompatibilities.

That same year, Arthur Andersen and its consulting arm were separated into distinct entities under Andersen Worldwide Société Coopérative. During the 1990s, tensions escalated as Andersen Consulting’s profits soared while it resisted transfer payments made to Arthur Andersen. In August 2000, arbitration by the International Chamber of Commerce granted Andersen Consulting independence while awarding Arthur Andersen $1.2 billion for past payments and forbidding Andersen Consulting from using the Andersen name. Consequently, on January 1, 2001, Andersen Consulting rebranded itself as Accenture, while Arthur Andersen shortened its corporate name simply to "Andersen."

Following this decision, Arthur Andersen’s CEO Jim Wadia resigned promptly after his board stipulated he must step down if he failed to secure at least $4 billion related to the separation deal. Industry observers viewed this arbitration outcome as a clear triumph for Andersen Consulting.

Executives from both organizations attributed the split largely to issues of greed and arrogance. Andersen Consulting accused Arthur Andersen of violating contractual agreements by launching a rival consulting firm named AABC (Arthur Andersen Business Consulting), which directly competed with Andersen Consulting in the marketplace.

Enron scandal

In the aftermath of the 2001 Enron scandal, where energy corporation Enron was revealed to have fraudulently inflated its revenue by $100 billion through systematic accounting deception, Andersen's role as the company's auditor came under intense examination. The Powers Committee, established by Enron’s board in October 2001, determined that Andersen neglected its professional duties and failed to report concerns about related-party transactions to Enron’s Board or Audit Committee.

On June 15, 2002, Andersen was found guilty of obstruction of justice for destroying documents connected to its audit of Enron. Although the Supreme Court later reversed this conviction, the resulting scandal and allegations of criminal involvement effectively ended the firm. Key individuals implicated included Nancy Temple from the legal department and David Duncan, the lead partner on the Enron account, who directed the destruction of documents.

Due to regulations by the U.S. Securities and Exchange Commission prohibiting convicted felons from performing audits, Andersen relinquished its CPA licenses and SEC registration on August 31, 2002, terminating its U.S. operations. Many personnel transitioned to other firms, and Andersen divested most of its American business to companies such as KPMG, Ernst & Young, Deloitte & Touche, and Grant Thornton International. By this point, Arthur Andersen had forfeited nearly all its clients and lost approximately two-thirds of its workforce from a peak of 28,000 employees.

The indictment also exposed inadequate audits performed for other corporations including Waste Management, Sunbeam Products, the Baptist Foundation of Arizona, and WorldCom.

On May 31, 2005, in Arthur Andersen LLP v. United States, the Supreme Court unanimously overturned Andersen’s conviction due to improper jury instructions that allowed a guilty verdict without requiring proof of wrongful intent or involvement in an official proceeding. Chief Justice William Rehnquist expressed doubt regarding the government's "corrupt persuasion" theory in his opinion.

Collapse

By mid-2002, the firm had disintegrated as questionable accounting practices linked to energy giant Enron and telecom company Worldcom were uncovered amidst their bankruptcies. These scandals played a significant role in prompting the 2002 passage of the Sarbanes–Oxley Act, designed to strengthen regulatory oversight and safeguard whistleblowers. Despite the collapse, some segments continued: consulting services had been separated earlier and operate today as Accenture and Protiviti, while former partners launched a tax-focused entity in 2002 now called Andersen Tax.

Demise

Although the Supreme Court overturned Andersen’s conviction in 2005, by that time the firm was effectively "nearly defunct," retaining only around 200 employees compared to its 28,000-strong workforce in 2002. Former legal advisor William Mateja and U.S. Chamber of Commerce executive Stephen Bokat concurred that Andersen was essentially "dead," with no practical prospects for revival. Journalist Kurt Eichenwald contended that even absent the Enron debacle, the extensive fraud at WorldCom would likely have doomed Andersen’s survival.

Andersen has not reemerged as a functioning enterprise. Ownership of the partnership transferred to four limited liability companies named Omega Management I through IV.

Arthur Andersen LLP managed the Q Center conference facility in St. Charles, Illinois until operational control shifted to Dolce Hotels and Resorts in 2014; however, Andersen retained ownership rights. In 2018, management reverted to the Q Center, which now primarily serves as a training venue for internal Accenture staff and other large organizations.

In 2014, Wealth Tax and Advisory Services (WTAS), established by former Andersen partners, acquired rights to use the Andersen name and rebranded itself as Andersen Tax. Its global division, WTAS Global, evolved into Andersen Global.

Transition of partners and regional offices to successor entities

After the firm's closure, numerous offices were taken over by other consulting organizations or managed by partners who launched new enterprises, such as:

Accuracy, established in 2004 by seven ex-partners, with its main office in Paris
Andersen Tax, which obtained the rights to the company name and rebranded from WTAS in 2014
BearingPoint, previously KPMG’s US consulting division, which acquired Andersen’s global business consulting units
Huron Consulting Group, created by former staff from Andersen’s Chicago branch
West Monroe Partners, founded in 2002 by former consultants and headquartered in Chicago
Navigant Consulting, which incorporated eight former Andersen partners
Protiviti, launched in 2002 by recruiting more than 700 professionals from Andersen’s internal audit and risk advisory segments
SMART Business Advisory and Consulting, which absorbed some ex-employees
jcba Limited, started by a partner specializing in aviation services
True Partners Consulting, a tax advisory firm founded by alumni of Arthur Andersen

These successor organizations capitalized on the expertise and client networks inherited from the original firm to build their presence within consulting and tax advisory markets.

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