ipl-logo

Enron And The Sarbanes-Oxley Act (2002)

1079 Words5 Pages

What is financial management? Experts refer to financial management as the science of money management. However, a broader definition of financial management would include the planning, organizing, directing, and controlling the financial activities of an enterprise which would include how a business ensures a positive cash flow and how the financial assets are administered and maintained. It is also the process of identifying and managing risks by applying general management principles to financial resources of the enterprise. From an organizational point of view, the process of financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available …show more content…

The regulation forces companies to make market-sensitive information available to all parties at the same time.
Dramatic and sweeping amendments were made to the SEC's disclosure rules in the summer of
2002 with the passage of the Sarbanes-Oxley Act. This act was passed by Congress in 2002 in response to multiple financial scandals involving large conglomerates such as Enron and
WorldCom. The act held senior management of companies accountable for the accuracy of their financial statements, while also requiring that internal controls be established at these companies to prevent future fraud and abuse. Implementing these regulations was expensive, but the act gave more protection to people investing in financial services, which can increase investor confidence and improve overall corporate investment.

Generally accepted accounting principles (GAAP) and specific rules of the accounting profession require that certain types of information be disclosed in a business's audited financial statements. Even though these rules and principles do not have the same force of law as SEC rules and regulations, they are widely accepted and followed by the accounting profession. …show more content…

Certified financial statements contain a statement of opinion from an auditor, in which the auditor states that it is his or her opinion that the financial statements were prepared in accordance with GAAP and that no material information was left undisclosed. If the auditor has any doubts, then a qualified or adverse opinion statement is written.

Laws regarding financial transactions and other like issues are enforced to make sure that no institution goes out of its way to be fraudulent in their dealings. These regulations form guidelines and policies set by the government as part of the law. Applying to all public and private financial intuitions in a country, these restrictions are set forward to ensure the flow of cash within a country and save its institutions from being bankrupt by too much outflow of funds. The credibility of these institutions remains intact due to law enforcement of the country.
Rules directed by the government are also aimed at institutions that fail to adhere to the law.
When clients file complaints against these institutions, it is the government’s responsibility to investigate. These investigations are very thorough, ensuring that each business is

Show More
Related

Barry Minkow: Identify The Affected Party In The Case

867 Words | 4 Pages

Accounting and auditing firm The scandal's consequences would primarily be a professional embarrassment for auditing and accounting firms. The American Institute of Certified Public Accountants quickly altered the auditing standards of the accounting profession in the United States, prompting auditors to become more proactive in combating fraud. The shareholders

Read More

What Caused The Sarbanes-Oxley Act Of 2002

71 Words | 1 Pages

The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.

Read More

Compare And Contrast Gramm-Bliley And Sarbanes-Oxley

333 Words | 2 Pages

The Sarbanes-Oxley (SOX), Health Insurance Portability and Accountability Act (HIPAA) and Gramm-Leach-Bliley (GLBA) acts all revolve around safeguarding or guaranteeing that information is truthful. While each act is protecting data in separate fields there are some very clear similarities. SOX requires companies to provide accurate accounting and requires a framework that can generate financial reports that are readily verifiable with traceable source data. There are three key provisions. Section 302 makes officers responsible for the accuracy of financial statements and the strength of their procedures for financial accounting.

Read More

Sarbanes-Oxley Act Of 2002: Integrated Audit Of Bullseye Company

1274 Words | 6 Pages

Introduction According to the Sarbanes-Oxley Act of 2002, the action requires that auditors report on the internal controls and financial statements of a publicly traded company. It will be the purpose of this report to provide a product that explains in detail how the audit of Bullseye company will be conducted. Furthermore, this report will also establish how the effectiveness of the managers of Bullseye will be tested based on how well they sustained internal control over the given period (Pany, 2019).

Read More

Basel III: Improving Canada's Banking System

662 Words | 3 Pages

Introduction: The financial crises in recent year have shown us the weakness of the regulatory framework among banks and it shows the gap that we could fill to improve bank’s risk management practices. The crises have show us that a resilient banking system is necessary for archiving a sustainable economic growth, we can take Canada for example, while 12 bank in US bankrupted since 1840, no bank in Canada experience the financial difficulty during the financial crises1. This is because of its high capital requirements and leverage ratio restrictions, these regulations have keep Canada’s banking system save from the financial crises and keep it in a sustainable economic development.

Read More

Fedex: Financial Reform And Investor Protection Act Of 2002

1186 Words | 5 Pages

Enron was a stark example of why financial accounting, accounting standards, reliable financial reporting, and oversight is so important to investors and creditors. Congress responded to public outcry by passing a bill, which President George W. Bush signed, into law in 2002. The Public Company Accounting Reform and Investor Protection Act of 2002, also known as the Sarbanes-Oxley Act or SOX, applies to all publicly traded companies. Sarbanes-Oxley, among other things, seeks to regulate auditors and the functions they perform. To help accomplish this task, the SOX Act required the establishment of an oversight board.

Read More

Enron And The Sarbanes-Oxley Act Of 2002 (2002)

886 Words | 4 Pages

For example, in 1989 Ernst & Whinney merged with Arthur Young to form Ernst & Young and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche, which created the Big Six. In 1998 Price Waterhouse merged with Coopers & Lybrand to form the Big Five. In 2002, following the Enron and WorldCom accounting debacles, Arthur Andersen closed, which resulted in the current Big Four. As a direct result of the Enron and WorldCom events, US Congress passed the Sarbanes-Oxley Act of 2002 (SOX) to protect investors from the possibility of fraudulent accounting activities by corporations.

Read More

The US Economy In The 1920s-1960's

302 Words | 2 Pages

The growth of the US economy in the 1920s-1960s had caused a shift of auditing development from the UK to the USA. In the years of recovery after 1929, investment in business entities grew rapidly. As companies grew in size, the separation of the ownership and management functions became more evident. Hence to ensure that funds continued to flow from investors to companies, and the financial markets function smoothly, there is a need to convince the participants in the financial markets that the company’s financial statement provided a true and fair portrayal of the relevant company’s financial position and performance. The primary objective of an audit was mainly to provide credibility to the financial statements prepared by company managers

Read More

Corporate Social Responsibility In Sauk Valley Community College

1282 Words | 6 Pages

Another major CSR failure was the Enron Scandal in 2001. Initially to investors, Enron seemed like a lucrative opportunity with shares reaching $90.75 (Investopedia). However, CEO Jeff Skillings, in collaboration with top executives and the corrupt accounting firm of Arthur Andersen LLP, managed this feat by leaving debt and major company losses off of balance sheets or, in other words, perpetrating accounting fraud. Once the scandal was revealed to the public, stocks plummeted to under a dollar, and the company was forced to declare bankruptcy, severely damaging the portfolios of thousands of loyal investors and costing Enron employees their jobs. As a result, the Sarbane-Oxley Act was put into place to heighten the penalty for the fabrication of accounting documents.

Read More

Pros And Cons Of Support And Opposition For Seperate GAAP For Smes

717 Words | 3 Pages

As long as there have been financial reporting requirements for businesses there has been the belief that the benefits should outweigh the costs of compliance. Now no one is suggesting that cost alone should be the primary factor in determining or following the standards of GAAP because the overall goal is to provide relevant and accurate financial accounting information to end-users to make sound business decisions. That being said, supporting views of a separate set of accounting principles make a valid point when acknowledging the different users of financial statement information. According to Cohn (2013), the primary users of private company financial information are lenders that are seeking the cash-based forms of accounting (para. 4).

Read More

Arguments Against Rules Based Standards

405 Words | 2 Pages

Standards used currently in the United States are GAAP, which relies on rules-based standards for financial reporting. The book defines rules-based standards as being highly detailed, yielding the occurrence of numerous scope exceptions and bright line distinctions, which then requires extensive implementational guidance (Wolk, p. 282). Essentially, rules-based standards minimize the utilization of an accountant’s personal judgment by instead requiring that accountants follow a detailed set of rules when formulating financial statements. However, in a study completed in 2002, the SEC states that the belief that applying rules-based standards can minimize professional judgment is simply untrue (SEC, 2003). The SEC explains how eliminating professional

Read More

Tesco Accounting Report

1656 Words | 7 Pages

The paper will calculate the financial ratios of company that will be interpreted with the implications of ratios. Moreover, the paper will describe the indicators of fraudulent reporting. Discussion Purpose of Income Statement It is also called profit and loss statement or income or expense statement. The main purpose of income statement is to indicate managers and investors whether the organisation was cost-effective

Read More

Sarbanes-Oxley Act Case Study

598 Words | 3 Pages

Decades of corporate greed, personal misconduct with risk taking eroded trust in corporate decision-making has resulted in the lack of confidence by stakeholders in American corporations. Restoring trust requires that the board of directors comply with requirements for greater accountability and transparency. Directors are legally bound, as stated by the Delaware Supreme Court, as fiduciaries are owing duties of care and loyalty, due care, and good faith the stakeholders and the wider society. Recent case law affirms that the duty of loyalty requires boards to act in good faith. The Sarbanes- Oxley Act and the Dodd–Frank Act require that directors protect the interests of the company and its stockholders, and refrain from risky decisions

Read More

Disintermediation In Banking

1535 Words | 7 Pages

Introduction Banks and other financial institutions plays an active role in meeting the financial needs of individuals and corporate entities. One of the principal activities performed by banks is to serve as intermediary between lenders and borrowers. Indeed, banking can be said to thrive principally on intermediation which is the process of lending money out to borrowers at a relatively high rate compared to the deposit interest rate. However, some conditions subsist that leads to the erosion of this role performed by banks and this is referred to as disintermediation. In the general sense, disintermediation refers to a situation where the activities of middlemen are avoided in the course of a transaction.

Read More

Essay On Importance Of Financial Management

812 Words | 4 Pages

Financial management “is the operational and financing activity of a business that is responsible for obtaining and utilizing the funds necessary for effective operations. Thus, Financial Management is concerned with the effective funds management in the business process. Finance is interrelated functions which deals with marketing function, production function, Human Recourse function and Research & development activities of the business concern. Financial Management is concerned with the financing, acquisition and management of assets with some overall goal in minds. There are three major areas in Financial Management decision making.

Read More

More about Enron And The Sarbanes-Oxley Act (2002)

Related Topics

Open Document