Enron Scandal: Financial Reform And Investor Protection Act

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

Three conditions are necessary for financial statement fraud to occur. There must be (1) an incentive to commit fraud. (2) the opportunity to commit fraud, and (3) the ability to rationalize the misdeed. These conditions make up what antifraud experts call the fraud tringle (Libby, Libby, & Short, 2017, p 232). Some well-known names come to mind when I think of financial fraud (e.g. Bernie Madoff and his $50 billion Ponzi Scheme, WorldCom. Arthur Anderson). Also, the Sarbanes-Oxley Act of 2002 (SOx) comes to mind. SOx was a law that was implemented to oversee

During the late 1990s and early 2000s, several companies like Enron, WorldCom, Adelphia, Global Crossing and Tyco, just to name a few, were embroiled in corporate fraud, greed and manipulation. These businesses were intentionally deceiving the public, their investors and even their employees. Company executives were hiding company expenses and liabilities, misreporting company finances in order to increase stock prices. External audit agencies that were hired to examine and certify financial statements for accuracy, were basically

The most common type of fraud within businesses is accounting and financial reporting fraud. The U.S. Securities and Exchange Commission (SEC) has made enormous efforts to establish laws and regulations by which accounting professionals and companies have to abide by to prevent fraudulent reporting and any sort of unethical activity. Many are very well aware of the Enron scandal which shook eth American business industry very much. A lot of investors were hurt and millions of dollars were lost. Enron’s CEO Jeffrey Skilling ended up being sentenced, even though his sentence was later reduced to 14 years of prison, (Berman, The Huffington Post). Because of the Enron scandal and few other similar ones, former President George W. Bush signed the Sarbanes-Oxley Act of 2002 into law. This act impacts all CPAs as well as CPA firms that conduct public company auditing. Attorneys, investment bankers, dealers, financial analysts and brokers are affected as well. The Sarbanes-Oxley Act of 2002 now requires the New Public Company Accounting Oversight Board (PCAOB) to retain a seven year record, cooperate with CPA groups, complete annual inspection, investigations may be completed at any time, registration with the board is mandatory, certain sanctions for violations may be put into place, etc. Without a doubt, there are a

Some can say that the Sarbanes-Oxley Act of 2002 is working while some say that there still ways to get around to committing corporate fraud. Washington wants to crack down on corporate fraud so they came up with the Sarbanes-Oxley Act in 2002 that was designed to protect the interest of investors. “The Sarbanes-Oxley Act established oversight of public corporate governance and financial reporting obligations and redesigned accountability and ethics standards…” (Ferrell, O., Hirt, G., & Ferrell, L., 2009). The act was an important stepping-stone in the right direction especially when responding to the financial scandals of Enron and WorldCom. Those scandals shook customer’s faith and confidence in corporate management of private organizations.

Not only was Enron a huge scandal at the time but also now WorldCom was coming into the picture, with this the public questioned as to how corporations were being governed (Welch. M. (2006)). In the wake of these scandals something major needed to happen to prevent any more corruption to occur. Both the Senate and the House in the summer of 2002 passed Sarbanes-Oxley Act with popular vote (Bumgardner.L. (2003)). After the Act was passed it called for changes in how companies run. Companies really had to look at how the roles of the companies’ top associates were going to change. Now when a company sends out financial statements, the managers of the company have to take ownership that the information being presented to the public and shareholders is correct. This can put an enormous amount of pressure on the company to report accurate numbers as to how the company is preforming, without Sarbanes-Oxley this would of never happened. Companies would not have to take ownership of what is being shared with the public and shareholder. Also now a clear picture is show as to how a company is truly preforming. It can be said that this is a

According to Investopedia online (2015), Sarbanes-Oxley Act of 2002 (SOX Act) is defined as a “legislative response to a number of corporate scandals that sent shockwaves through the world financial markets.” Prior to SOX, the United States faced major financial scandals in the American history. Some of the biggest financial scandals involved such high-profile companies as Enron, Tyco, WorldCom, and Arthur Andersen. Two types of fraud exist in the corporate world. First is fraudulent financial reporting which is defined as an intentional misstatement of amounts or disclosures with the intent to deceive users. The other fraud is misappropriation of assets which is defined as a fraud that involves theft of an entity’s assets. The following will

Enron, though not the largest scandal, could be one of the most talked about and blown up by the media. Enron was caused by a couple of reasons, though the main underlying factor behind these is a conflict of interest that has evolved in our companies. First, I think that one of the obvious causes of the Enron scandal is our legal and regulatory structure (Reid). Current laws and SEC regulations allow firms like Arthur Andersen (Enron auditor) to provide consulting services to a company and then turn around and provide the audited report about the financial results of these consulting activities (Sorkin). This is an obvious conflict of interest that is built into our legal structure and must be addressed. Second, a private company like Enron currently hires and pays its own auditors. This again is a conflict of interest built into our legal system because the auditor has an incentive not to issue an unfavorable report on the company that is paying him or her. Third, most large companies like Enron are allowed to manage their own employee pension funds. Again, this is a conflict of interest built into our

Following the several financial scandals of the early 2000s involving the former notorious companies such as Enron and WorldCom corporations, the Sarbanes-Oxley Act of 2002 emerged. Indeed, SOX required that every publicly traded company CEO and CFO endorse the accuracy of their organizations financial statements prior to the official release. Obviously, the idea behind this decision is certainly a way to ensure the integrity of the upper management which dismisses the existence fraud on the financial statements. However, a discovery of fraudulent information on certified financial statements is subject to civil liabilities and criminal prosecutions.

Many organizations have been in the news over the past few years due to accounting ethical breaches that have affected their customers, employees, and the general public. I searched the Internet to locate a story in the news that depicts an accounting ethical breach. I selected Krispy Kreme. I enjoy their hot donuts and was curious to learn more about how they played with the numbers. For some reason I always want to dig into the trickery behind the manipulation of financial statements.

Corporate fraud has taken the world by storm for over the past decade. The biggest fraud cases to ever occur happened in 2001 and 2002 and since then fraud seems to be more and more common around the world. According to Forbes.com (n.d) the biggest fraud cases to ever occur was Enron, Bernard Madoff, Lehman Brothers, and Cendant, with Enron being the largest accounting scandal to ever take place.

It should boggle the mind just how this was able to happen, given how Enron had been known to have an especially skilled and knowledgeable audit committee. According to Lublin (2002), the committee included such figures as a former accounting professor and dean, presidents and chairmen of both government-owned and private institutions, and was notable for its overall greater competence compared to what one could normally expect from an audit committee. In theory, then, Enron’s audit committee should have been able to prevent or at the very least head off the scandal.

Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger

Unfortunately, scandals like Enron are not isolated incidents and the last decade has offered Americans a disheartening perspective with comparable scandals like that of WorldCom and Tyco, Sunbeam, Global Crossing and many more. Companies have a concrete responsibility not just to their investors but to society as a whole to have practices which deter corporate greed and looting and which actively and effectively work to prevent such things from happening. This