John and Mary Andersen immigrated to the United States from their native Norway in 1881. The young couple made their way to the small farming community of Plano, Illinois, some 40 miles southwest of downtown Chicago. Over the previous few decades, hundreds of Norwegian families had settled in Plano and surrounding communities. In fact, the aptly named Norway, Illinois, was located just a few miles away from the couple’s new hometown. In 1885, Arthur Edward Andersen was born. From an early age, the Andersens’ son had a fascination with numbers. Little did his parents realize that Arthur’s interest in numbers would become the driving force in his life. Less than one century after he was born, an accounting fi rm bearing Arthur Andersen’s name would become the world’s largest professional services organization with more than 1,000 partners and operations in dozens of countries scattered across the globe.
Think Straight, Talk Straight
Discipline, honesty, and a strong work ethic were three key traits that John and Mary
Andersen instilled in their son. The Andersens also constantly impressed upon him
the importance of obtaining an education. Unfortunately, Arthur’s parents did not
survive to help him achieve that goal. Orphaned by the time he was a young teenager,
Andersen was forced to take a fulltime job as a mail clerk and attend night classes
to work his way through high school. After graduating from high school, Andersen
attended the University of Illinois while working as an accountant for Allis-Chalmers,
a Chicago-based company that manufactured tractors and other farming equipment.
In 1908, Andersen accepted a position with the Chicago offi ce of Price Waterhouse.
At the time, Price Waterhouse, which was organized in Great Britain during the early
nineteenth century, easily qualified as the United States’ most prominent public
accounting fi rm.
At age 23, Andersen became the youngest CPA in the state of Illinois. A few years
later, Andersen and a friend, Clarence Delany, established a partnership to provide
accounting, auditing, and related services. The two young accountants named their
fi rm Andersen, Delany & Company. When Delany decided to go his own way, Andersen renamed the fi rm Arthur Andersen & Company.
In 1915, Arthur Andersen faced a dilemma that would help shape the remainder
of his professional life. One of his audit clients was a freight company that owned
and operated several steam freighters that delivered various commodities to ports located on Lake Michigan. Following the close of the company’s fi scal year but before
Andersen had issued his audit report on its fi nancial statements, one of the client’s
ships sank in Lake Michigan. At the time, there were few formal rules for companies
to follow in preparing their annual fi nancial statements and certainly no rule that required the company to report a material “subsequent event” occurring after the close
of its fi scal year—such as the loss of a major asset. Nevertheless, Andersen insisted
that his client disclose the loss of the ship. Andersen reasoned that third parties who
would use the company’s fi nancial statements, among them the company’s banker,
would want to be informed of the loss. Although unhappy with Andersen’s position,
the client eventually acquiesced and reported the loss in the footnotes to its fi nancial