Lecture explores business ethics after collapse of Arthur Andersen

Emmet Farnan photo

Larry Katzen discussed the collapse of the accounting company Arthur Andersen on Tuesday afternoon, as part of the annual Ethics Week hosted by the Mendoza College of Business. Katzen, who was a managing partner at the company when it was indicted for obstruction of justice in association with Enron, said the media played a large part in the company’s downfall.

“Everything people learned about the Arthur Andersen and Enron case was what they read in the papers and saw on TV,” Katzen said. “It all said that Arthur Andersen did a terrible auditing job, and this was responsible for the demise of the company.”

Katzen disputed this portrayal, arguing there was no evidence Arthur Andersen did anything wrong during the auditing process.

As an accounting firm for Enron, Arthur Andersen had millions of documents subpoenaed after Enron was exposed for accounting fraud, Katzen said. However, he challenged the accusation that Arthur Andersen shredded important documents prior to the subpoena.

“It’s a requirement that before you get an indictment, you must destroy all documents that are irrelevant to the auditors,” he said.

Furthermore, Katzen said Enron’s fraud was mainly related to special purpose entities, which another accounting firm was responsible for auditing. Katzen said Arthur Anderson, throughout his 35 years at the company, maintained a high ethical standard.

“The reason why I joined Arthur Andersen was their integrity,” he said. “These people walked away from clients that they felt were not operating under conservative accounting principles.”

Katzen said the effects of the scandal were devastating. Within 90 days of the indictment, Arthur Andersen had lost its right to audit and was out of business.

“Eighty-five thousand people lost their jobs because of Arthur Andersen’s association with Enron,” he said.

Read the entire story on The Observer website.