Analysis Of The Sarbanes-Oxley Act

The Enron scandal was one instance that forensic accountants were paramount in exposing fraud. In the work “Financial Shenanigans”, Enron is given the “As Bad as It Gets” award for Most Imaginative Fabrication of Revenue. Enron purposely misstated its revenue to look richer than it was. Enron became synonymous with the term massive accounting fraud in the fall of 2001 with its collapse and bankruptcy. Enron ranked number seven in Fortune magazine’s list of the 500 largest companies in 2000, having in just five short years miraculously increased its revenue by 10, from $9.2 billion in 1995 to $100.8 billion in 2000. Investors should have wondered how often a company achieved this increase in growth as quickly as Enron did. The answer would

“At its core, the Sarbanes-Oxley legislation was designed to fix auditing of U.S. public companies, which is consistent with the official name of the law: the Public Company Accounting Reform and Investor Protection Act of 2002.” What effect has Sarbanes-Oxley had? At a direct level, the legislation creates new incentives for firms to spend money on internal controls, above and beyond the increase in audit costs that would have come about because of the scandals of the 2000s. The number of audit failures implicating top audit firms also grew in the lead-up to Sarbanes-Oxley. “The preexisting system of detecting and enforcing rules against corporate fraud and theft were apparently not strong enough . “The SEC (Securities and Exchange Commission) has been the lead agency for public enforcement of laws and regulations that, protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation .” Private enforcement occurs because of a lawsuit. It generally depends on the threat of large damage awards, which often exceed a law breakers net worth, and fail to provide sufficient deterrence . On top of that, the lawbreaker can settle the case using company funds, as such hurting the investor . A primary objective of Sarbanes-Oxley was to enhance auditor independence, however, potential problems to meeting this goal remain. Auditors are still hired by their

Fraudulent reporting can happen when a person or a company is doing well, and want to do better, or when they are doing poorly and need to make themselves appear to be doing well. The work of forensic accounting professionals is not always crime-related. Businesses also value their input on structural changes they are thinking of implementing . They can contribute input during mergers or acquisitions, for example, can give all parties an accurate assessment of an entity’s’ financial situation and value . They are used in family law and marriage cases to uncover the truth about the existence of assets, as was done in the OJ Simpson civil case . They can also be used when trying to apprehend an extreme criminal that avoids all attempts at capture, such as Al Capone, where following the money trail led them to an arrest. That story made headlines and helped establish the role of the forensic accountant. Forensic accountants, as you can see, are used for a variety of jobs in today’s world. They help keep us safe by examining the finances of suspected terrorists, help build a financially sound business, and help to prosecute the corrupt and unjust. Forensic accounting, much like a forensics expert in the medical field, look for the little things. The clues that point to who, what, how, and why a fraud was committed. They use their knowledge to help make sure these people are stopped and punished