For myself, I believe the auditors guilty of obstruction of justice.  The key issue in the case is Nancy Temple’s email reminding Andersen personnel about the company’s shredding policy.  If this email were as innocent as Rusty Hardin claimed, then it seems that the Andersen lawyers and administrators would have sent out such reminders before, including to employees auditing other corporations.  Given that this activity forms a beautiful defense against the charges, Mr. Hardin would have provided such evidence if it existed.  Alas, he presented no such proof, so we have to presume that none exists.  Corroborating this conclusion is the fact that several Andersen witnesses testified that they did not know that the firm even had a policy concerning the shredding of documents.  The only logical inference is that Temple’s email contained the message to shred as many documents as possible before the SEC inquiry turned into an official SEC investigation.

 

Having said this, however, I wonder about the penalty.  With a guilty verdict, what more can or should be done to the firm?  The Department of Justice drove Arthur Andersen to the brink of bankruptcy before the firm ever received a fair hearing.  I think Congress ought to change the law about indicting corporations, for it appears impossible to indict a firm without killing it.  In addition, there clearly are innocent people at Andersen.  Why did they have to suffer for the crimes of others?  Couldn’t the Department of Justice have indicted the individuals who obstructed justice, such as Nancy Temple, without indicting everybody?

 

On the other hand, I am not going to cry for Andersen or its employees.  The fiasco at Worldcom prevents me from shedding or shredding a single tear.  The mishaps at Boston Chicken, Waste Management, Sunbeam, Enron, and Worldcom inform me that Arthur Andersen had a culture of underauditing its clients and deceiving the readers of financial statements.

 

As a result of this case auditors in the Big Four might start shredding more documents as a matter of policy before any future inquiry or investigation begins.  I caution prudence, for they might lose those cases in which they are innocent if they cannot produce evidence that clears them.

 

Two big questions remain, the first of which is: when are executives at Enron going to be charged with crimes?  I find it disgusting that the likes of Fastow, Lay, and Skilling remain free.  If the SEC cannot craft a case against them, then I suggest firing Harvey Pitt and replacing him with Eliott Spitzer.  At least Eliott knows how to get the job done.

 

The case against Arthur Andersen dredged up a lot of accounting filth.  Arthur Andersen practically allowed Enron officials to dictate the audits by telling Andersen employees what they could and could not do.  Any Andersen accountant who tried to do the right thing was removed from the audit.  Anybody who disapproved of the special purpose entities or how they were accounted for got drowned out by others.  Unfortunately, a number of Andersen employees acted unprofessionally throughout their long tenure with Enron.

 

These observations lead to my last major issue -- are things really different at the other public accounting firms?  What exists in the fabric of their cultures that will prevent the occurrence of underauditing?  Reactions by the remaining Big Four are telling -- they view Andersen’s downfall as a yard sale in which clients and personnel can be acquired at cheap prices.  Additionally, they are lobbying Congress hard not to implement any rules detrimental to them.  I see no movement for reform within these organizations or even an acknowledgement that the profession is in trouble.

 

The state of affairs in the accounting profession appears worse than I thought.  Maybe much worse.  As I view Arthur Andersen on its deathbed, I have the eerie feeling that I am also witnessing the disintegration of private-sector auditing.

J. EDWARD KETZ is associate professor of accounting in Penn State's Smeal College of Business Administration.

More articles by Mr. Ketz