We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is the Andersen Effect?

Mary McMahon
Updated Feb 12, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The Andersen effect refers to the increased scrutiny of financial records seen after a major financial scandal in 2001 involving accounting firm Arthur Andersen. Worried by the outcome of the scandal and the issues it revealed with auditing and accounting practices, companies increased the intensity of their auditing programs to avoid encountering similar problems. Indirectly, the scandal contributed to improvements in corporate accounting standards and practices.

Arthur Andersen was charged after its role in the downfall of the energy firm Enron was revealed. Enron had been posting positive financial statements after auditing by the accounting company indicated that the information was accurate and correct. When Enron filed for bankruptcy, the event was unexpected, because the company shouldn’t have failed, according to its financial reports. Further muddying the waters, members of the firm destroyed and hid evidence, exposing themselves to criminal charges in connection with their role in the case.

In response to the scandal, which dominated US headlines and attracted considerable public attention around the world, some firms started looking at audits more closely. The Andersen effect included more intense evaluations of auditing practices, personnel involved in reviewing financial records, and the records themselves. Firms also wanted to catch errors as early as possible, no matter their origins, in order to correct statements. The Andersen effect could serve members of the board making decisions about the company as well as shareholders who needed accurate financial information to guide their investment practices.

Enron was accused of using “creative accounting” to hide losses and create a rosier picture than actually existed. One sign of the Andersen effect was an increased reliance on outside directors and auditors with less of a personal stake in financial statements. Their objective views could uncover more information than might be provided by auditors tied too closely to a company, who might experience pressure to return a positive audit in order to get more work in the future. Accounting firms also developed more stringent ethical guidelines to address specific concerns about conflicts of interest that might interfere with the fairness of their work.

For shareholders, the Andersen effect resulted in more detailed and accurate annual reports and other accounting documents. Reforms to accounting practices were also designed to increase confidence among consumers and the general public who wanted to be assured that companies took accounting seriously. The government also got involved with legislation to limit abuses, while the accounting industry took an active role in the development of more effective standards and practices.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.