Consulting by Auditors (A): Levitt’s Campaign Case Study Solution


The case “Consulting by Auditors (A): Levitt’s Campaign” explores the complexities and ethical dilemmas surrounding the provision of consulting services by auditing firms. This case revolves around the regulatory challenges faced by Arthur Andersen, a leading auditing firm, during the late 1990s when then-SEC Chairman Arthur Levitt raised concerns about potential conflicts of interest and the independence of auditors who also provided consulting services. This essay delves into the case issue, provides a detailed analysis, draws conclusions, and offers recommendations.

Case Issue

The central issue in this case is whether auditing firms should be allowed to provide consulting services to their audit clients, and if so, to what extent. The case highlights the ethical and regulatory concerns related to auditor independence, conflicts of interest, and the potential impact on audit quality. Arthur Levitt’s campaign to address these issues becomes the backdrop against which the case unfolds.

Case Analysis

Conflict of Interest and Independence

Discuss the inherent conflict of interest when an auditing firm provides consulting services to the same client.
Analyze how this conflict can compromise auditor independence and objectivity.
Regulatory Environment

Explore the regulatory framework governing auditing and consulting services during the late 1990s.
Examine the SEC’s stance, led by Arthur Levitt, on the need for stricter regulations to address potential conflicts.
Arthur Andersen’s Dilemma

Provide an overview of Arthur Andersen’s position in the case.
Analyze the firm’s motivations for providing consulting services to audit clients.
Discuss the ethical challenges faced by Arthur Andersen in maintaining independence while pursuing lucrative consulting contracts.
Industry-Wide Impact

Evaluate the potential consequences of stricter regulations on the auditing and consulting industry.
Discuss how these regulations could affect the business models of auditing firms.


The case of “Consulting by Auditors (A): Levitt’s Campaign” underscores the critical importance of auditor independence in ensuring the integrity of financial reporting and maintaining public trust. Arthur Levitt’s campaign to address conflicts of interest between auditing and consulting services prompted a necessary debate about the ethical standards and regulatory environment governing these practices.

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Enhance Regulatory Oversight

Strengthen regulatory oversight by requiring more transparency in auditing and consulting contracts.
Implement strict limitations on the types of consulting services that can be provided to audit clients.
Separate Audit and Consulting Divisions

Consider separating the audit and consulting divisions within auditing firms to minimize conflicts of interest.
Ethical Training and Culture

Foster a strong ethical culture within auditing firms through training and leadership commitment.
Client Diversification

Encourage auditing firms to diversify their client portfolios to reduce their dependence on consulting revenues from a single client.
Continuous Monitoring

Establish mechanisms for continuous monitoring of auditor independence and adherence to ethical standards.

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