Auditing

So Who Was Arthur Andersen, Anyway?

The end of Andersen raises the question: what was the beginning of Andersen?
John GoffAugust 30, 2002

Today marks the last official day of business for disgraced accounting firm Arthur Andersen LLP. After a June conviction on obstruction of justice charges related to he Enron Corp. bankruptcy, the firm’s U.S. management said it would shutter its operations on Aug. 31. Since that date falls on a Saturday, today is really the final working day for the once pre-eminent accounting firm in the world

Such an inglorious end would no doubt infuriate Arthur Andersen — the person. Andersen was something of an accounting wunderkind back in the boom days of the Roaring Twenties. At age 23, he was the youngest certified public accountant in Illinois — and one of only 2,200 CPAs in the country.

Four years later, he was invited to head the Department of Accounting at Northwestern University. A year after that, he became the first university professor to move into public accounting (although he continued to teach at Northwestern for nearly a decade).

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As one might imagine of a prodigy in his field, Arthur Andersen was an upstart innovator with little interest in creating “just another accounting firm.” From the start, Arthur Andersen intended his eponymous firm to be an enterprise founded upon knowledge, information and education.

“The thoroughly trained accountant must have a sound understanding of the principles of economics, of finance and of organization,” he once said. “It has been the view of accountants up to this time that their responsibility begins and ends with the certification of the balance sheet and statement of earnings. I maintain that the responsibility of the public accountant begins, rather than ends, at this point.”

Challenging standard practices and taking a business approach to auditing, Andersen was known for encouraging his employees to “think straight and talk straight.”

In the days before World War II, Andersen was asked to become the first salaried president of the New York Stock Exchange. He declined, choosing instead to remain at the helm of the Chicago-based accounting firm.

Arthur Andersen died in 1947. After his passing away, the accountancy that bore his name almost closed down. But Leonard Spacek, a disciple of Andersen’s, was able to convince the company’s partners to remain together despite financial uncertainty. Spacek took the helm of the firm that year, and didn’t relinquish the role until to 1963.

During Spacek’s tenure, Andersen moved to the top of its profession. The accountancy underwent a worldwide growth spurt, with revenues jumping from $8 million in 1950 to $130 million just 20 years later. The firm also opened its first international offices during that period.

In the wake of the company’s felony conviction in June, however, most of those overseas offices have either been merged with other accounting firms or shuttered. And as of 5:00 today, the firm’s flagship U.S. operation will cease to exist — a sad final entry in an otherwise impressive ledger.