Perception and reputation damage: Arthur Andersen's Enron association

Auditing

The main problem related to many companies leaving Andersen, despite the fact that its Houston office had no part in servicing the engagements, is perception. Primarily, Andersen had a significant business relationship with Enron, which was its largest client. With Enron's demise, this relationship was seen as universally damaging, regardless of the areas of the company that had nothing to do with the scandal.

Secondly, Andersen's reputation even before its relationship with Enron was not crystal clear to begin with. Indeed, its reputation had already been damaged by several investigation into its other accounting and auditing practices. The Enron scandal appears to just have been the final nail into the coffin. It appears then that, regardless of any true wrongdoing, its mere association with the scandal brought about irreversible damage.

If I had an accounting career, my reputation could be damaged by turning a blind eye when I see discrepancies in the accounting practices of my clients. Even if I knew nothing about these concealments, any investigations into their accounts could damage my career. I think this would be the case regardless of whether the investigations reveal wrongdoing or not. When my integrity is questions, it could take years to build up a sound reputation again, and I might lose a significant amount of business in this way.