Strategic Management Accounting

The theatrical termination of Arthur Andersen came as a great shock when it was once of the most famous accounting firm in the world. For changing its strategy, Andersen moved from being one of the largest professional service organisations in the world to almost complete collapse within a few years. There were significant impact of the firm's failure on its employees, customers, investors and the general public is hard to overstate on its organisational architecture. This report will discuss the environmental and strategic changes that occurred over the life of Andersen in 1990s and early 2000s.

It will also discuss and explain the managing partner would do differently to the actual management by using organisation architecture framework to in early 1990s. In order to limit the consulting work at accounting firms the SEC proposed new regulations in 2000s. The SEC proposal was named "fatally flawed" before the Senate Banking Committee in July 2000. The argument about the proposal was being made to provide more active role in making needed changes in the measurement and reporting system to give better information for decision-making by corporations, investors and government.

However, the SEC proposal was defeated by the "Big Five" accounting firms. The market changes for Arthur Anderson (AA) both occurred in internal and external environment. In 1990, the change in the internal environment increased the competitive market for the firm which raised the problem about the company undergoes. The company undergoes was came from auditors who realise they are being underpaid and also related to accountants whose salaries are lagging behind of other professionals. These leads many of top consultants moved to other consultant firms or start their own business because the company did not compromise.

On the other hand, the change in the external environment has led the auditing business into a down turn. Therefore, increasing in completers and larger numbers of mergers made the auditing service become a low profit margin activity in 1990s. The new strategy changes played an important role at Anderson in 1998s. The changes were mainly about retirement and the culture environment of the company. Firstly, in order to achieve the goal in cutting cost, the company enforced employee to retire at the age of 56 which caused skilful auditors leave and some inexperienced auditors rise.

Secondly, the company also put a major focus on increasing the company's revenue through the "2X" performance evaluation system. On this way, partners will award by bringing two times in their revenue in work outside of job scope through this system, otherwise they will get penalized or dismissed. In addition, the changes for the culture included changing from solid to soft like the casual dress code, removing the big wooden door at entrance and changing the company logo to a "rising sun".

The strategies used in the earlier period such as clean-cut, professional, "think straight, talk straight" had all gone after this new changes occurred and changed the culture environment. In 1990, the Professional Standards Group (PSG) was moved out of the Chicago headquarters and dispersed to local offices in order to give local offices more power in decision making. Thus, the local offices were assigned significant decision rights which made the committing accounting frauds much easier for the auditors and also would most likely result in local officers act to maximise their own interest.

The reward system determined an auditor's revenues by how much new business they bring to the firm. For example, partner will be rewarded if they could bring in two times their revenue in work outside their job scope. However, these rewards system has lead to shirk audit jobs and fraud problems. For example, they allowed clients to keep details on losses, approve inaccurate financial statements and overstate clients' profit. Consequently the incentive from reward system was totally misused and problems existed with the different objectives between owners and employees.