Did the waste management audit failures signal lower firm-wide audit quality at Arthur Andersen?

Abstract

We examine Arthur Andersen’s audit quality in the 10 years before the collapse of Enron. During this period, Andersen was involved in a series of deficient audits, including Colonial Realty, Sunbeam, Waste Management, and the Baptist Foundation of Arizona. Andersen paid $512 million to settle lawsuits related to these audits, and each of the settlements were among the largest ever made by an audit firm in the pre-Enron period (Hawkins and Cohen 2003).1 As Ball (2009) suggests, Andersen’s reputation had started to suffer even before Enron.