Inside Arthur Andersen: Shifting Values, Unexpected Consequences

Chapter 5. Consulting Revolution

Despite the SEC’s belief that consulting posed a conflict of interest to the independence of audit, in 1979, Andersen’s partners opted to expand their consulting services to offset audit’s lackluster performance and to continue Andersen’s growth. It was a hard choice—split out the consulting part of the firm or keep it. But competition among accounting firms was increasingly aggressive as audit revenue growth flattened. Some people might argue that the firm had no choice at all but to expand consulting, given the business and regulatory environment at the time.

The choice carried responsibilities. Independent public accounting firms had a duty to stay clear of work where their staff might make management ...