Arthur Andersen Conviction Overturned - What does it mean? 759



  • The US Supreme Court overturned the conviction of the Arthur Andersen accounting firm.
    Andersen had put in practice a policy that called for the destruction of ‘unnecessary documentation’. They shredded tons of documents followed the policy, but they said in court that ‘there was no intent to thwart the SEC investigation’.
    What does it mean to all of us?
    If we have document-retention policies, we will have more freedom to destroy documents without fear of potential prosecution. We do not need to keep all files for fear that any disposal could mean a potential prosecution.
    Sure, we will be charged if we destroy documents consciously knowing we are committing a fraud.
    But it is not that simple. What do you believe about that?



  • s103 of the Act, in establishing a seven-year minimum retention period for audit documentation, will presumably rein in the more exuberantly aggressive destruction practices. The real fun will start, as it so often does, when attempts are made to ‘push the envelope’ as to precisely what the limits of the definition ‘audit work papers, and other information related to any audit report, in sufficient detail to support the conclusions reached in such report’ are. Perhaps it would be hopelessly naïve to expect that testing every last letter of SOx will not become the new sport…
    (Apologies if this appears twice - I had system problems when posting and I seemed to lose the first attempt.)



  • I have a contrary view which is that the Andersen ruling is relatively meaningless. It was based on a technicality and the result is a retrial.
    It is the result of the retrial that’ll be meaningful.



  • As a former AA employee, I disagree with much of what has been reported about the ‘document retention policy’. The press has made it sound as if the policy went into place when AA sensed that the SEC was on to something - that is just plain wrong. The policy was required knowledge in the firm and had been in place for many years. Anyone at AA that says they never heard of it is either a liar or an idiot. I distinctly remember an AA partner getting on his knees at an office-wide meeting at least two years prior to the Enron debacle and pleading with us to throw out our JIK/GORP/CYA/whatever you call it. The purpose was to dispose of anything that did NOT form the basis of the audit opinion, such as half-finished spreadsheets, early draft versions that were off-the-mark, etc. The partners did not want that stuff around becasue it is used by the plaintiff’s lawyers to make the partner look incompetent (e.g. ‘Mr Partner, please explain this half-finished memo that quotes the wrong GAAP and that you never saw because someone below you caught the error, fixed it and gave you the finished memo using the correct GAAP references’).
    I’m not saying AA was without blame in the Enron scandal, but the government tried to bust them for the wrong thing.



  • As a former AA employee, I disagree with much of what has been reported about the ‘document retention policy’. The press has made it sound as if the policy went into place when AA sensed that the SEC was on to something - that is just plain wrong. The policy was required knowledge in the firm and had been in place for many years. Anyone at AA that says they never heard of it is either a liar or an idiot. I distinctly remember an AA partner getting on his knees at an office-wide meeting at least two years prior to the Enron debacle and pleading with us to throw out our JIK/GORP/CYA/whatever you call it. The purpose was to dispose of anything that did NOT form the basis of the audit opinion, such as half-finished spreadsheets, early draft versions that were off-the-mark, etc. The partners did not want that stuff around becasue it is used by the plaintiff’s lawyers to make the partner look incompetent (e.g. ‘Mr Partner, please explain this half-finished memo that quotes the wrong GAAP and that you never saw because someone below you caught the error, fixed it and gave you the finished memo using the correct GAAP references’).
    I’m not saying AA was without blame in the Enron scandal, but the government tried to bust them for the wrong thing.
    Generally I would agree with this view - all major firms have document retention policies and this is normal, sensible, etc. I worked for two major firms myself and both had similar policies for the reasons you mention.
    However, regular compliance with document retention policies does not normally result in a reported 2 tonnes of paper being shredded on the eve of a SEC investigation :?
    I am sure, in hindsight, the SEC somewhat regrets their handling of Andersen and the consequences therof - and this will surely influence the lack of an indictment for another firm involved in questionable tax schemes.



  • It means thanks the US Chamber for being the only org out there standing up for business and the rules therein.


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