DEFINITION of 'Andersen Effect'

A reference to auditors performing more careful due diligence when auditing companies in order to prevent accounting errors. This extra level of accounting scrutiny often leads to companies restating earnings even though they have not necessarily intentionally misrepresented material accounting information.

BREAKING DOWN 'Andersen Effect'

The Andersen effect takes its name from the accounting firm Arthur Andersen LLP, which was indicted in a number of accounting scandals in relation to the Enron collapse. The Andersen effect usually occurs as a result of a change in accountants.

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