Seven years ago on this date, accountancy firm Arthur Anderson was found guilty of obstruction of justice by a jury in the United States. As auditors for Enron, it allowed the company to use questionable accounting practices and illegally destroyed documents to cover up its trail. One key piece of evidence that helped the conviction was the description of a training video in which an Arthur Anderson executive basically gave the thumbs up to shred documents.
In addition to destroying Arthur Anderson's reputation that was built over 89 years, the conviction by the 12-member jury would lead to more lawsuits being brought against Arthur Anderson that would eventually lead to its bankruptcy.

Legal Precedent
The case also set a significant legal precedent when U.S. District Court Judge Melinda Harmon decided that the jury could convict the company as a whole if it could not pinpoint the people who were responsible for the document shredding. Judge Harmon took more than a day to reach the decision and said she found it "terrifying for a district judge" to set a precedent of this magnitude.

Sarbanes-Oxley
As a result of the Enron scandal and accountancy fraud in this case, lawmakers tightened the regulatory standards by passing into law the Sarbanes-Oxley Act in 2002 (SOX). The Act introduced more measures for transparency, reporting and penalties, among other things.

Related Articles
  1. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  2. Fundamental Analysis

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  3. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  4. Economics

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
  5. Investing

    How To Calculate Minority Interest

    Minority interest calculations require the use of minority shareholders’ percentage ownership of a subsidiary, after controlling interest is acquired.
  6. Stock Analysis

    How Rollins Inc. Transformed from Radio to Pest Control

    Discover how Rollins, Inc. grew and expanded, making numerous acquisitions, transitioning from the radio industry to the pest control industry.
  7. Entrepreneurship

    Mark Cuban Success Story: Net Worth, Education & Top Quotes

    Learn more about America's favorite billionaire: Mark Cuban, outspoken owner of the Dallas Mavericks and star of the hit show "Shark Tank."
  8. Economics

    Explaining Replacement Cost

    The replacement cost is the cost you’d have to pay to replace an asset with a similar asset at the present time and value.
  9. Economics

    How Does National Income Accounting Work?

    National income accounting is an economic term describing the system used by a country to gather data and determine aggregate economic activity.
  10. Investing News

    Acquisition of Zulily Inc

    On August 17, 2015, Zulily Inc (ZU), an e-commerce company that caters mothers and children, announced that it will be strategically acquired by QVC, a part of Liberty Media Corporation (LMCA), ...
RELATED TERMS
  1. Operating Cost

    Expenses associated with the maintenance and administration of ...
  2. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  3. Normal Profit

    An economic condition occurring when the difference between a ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  5. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  6. International Financial Reporting ...

    A set of international accounting standards stating how particular ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!