What If Andersen Had Shredded in Toronto or Calgary? The Potential Criminal Liability of Canadian Public Accounting Firms

Abstract

Both Canadians and Americans often assume that the legal system works, as with apparently many other aspects of our society, the same in both countries. Just as these other assumptions often fail to stand up to detailed scrutiny, so may the assumption that Arthur Andersen LLP could have been charged with and convicted of obstruction of justice in Canada. In this paper we examine the hypothetical question of what if a public accounting firm had shredded documents as a result of fearing a provincial securities' regulatory investigation in Toronto or Calgary. We examine the key differences between both the law and the institutional environment in Canada and the United States to seek to determine whether such a prosecution could occur in Canada. We find that the letter of the law would probably have resulted in a successful prosecution if it was undertaken. The differences in the institutional environments likely would never have lead to the decision to prosecute criminally a Canadian public accounting firm. Implications of this conclusion are discussed.

Keywords: ENRON, Andersen, Canada, Auditor, Criminal law

JEL Classification: M49, G33, G38, K14, K42