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Enron Making The Sarbanes-Oxley Act (SOX)

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Enron:
Enron was created in 1985 and was one of the biggest companies in America at the time. The company worked with internet bandwidth, and risk management, but was mainly known for their natural gas and electricity. From 1996 to 2001 Enron was selected as “America’s most innovative company” by Fortune Magazine.
Enron Fraud:
In 1992, Jeff Skilling who was the president of Enron’s trading operations convinced federal regulators to permit Enron to us an accounting method known as “mark to market” which was a technique only used by brokerage and trading companies. With mark to market accounting the value of security was recorded on a daily basis to calculate the profits and losses. This allowed Enron to count earnings from long-term energy contracts as current income. They used this technique to inflate revenue numbers by falsifying the projections for future revenue. This technique made it difficult to keep track of how Enron was making …show more content…

It was created to prevent fraudulent activity of large businesses. Multiple businesses, not just Enron, that were publicly-traded, all boosted their stock prices by reporting false financial records. Almost a thousand publicly traded companies restated their financial statements this made almost six trillion dollars of the stock market value disappear. Because of this the Congress created the Sarbanes-Oxley Act (SOX).
SOX Act affected the financial reporting it ended self-regulation of the public accounting industry. SOX achieved this by creating the Public Company Accounting Oversight Board (PCAOB). The PCAOB is empowered by the Securities Exchange Commission (SEC) and is to enforce the regulations of the accounting industry. SOX requires for all accounting firms to be registered to issue audit reports for publicly-traded companies. The PCAOB is to perform investigations of accounting practices, and hold disciplinary hearings. The SOX Act gives integrity to financial

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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.

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The rules state that “public companies must keep an internal control report so that any action taken within the business may be monitored and controlled in case any illegal action is taking place.” The corporations must also “have an outside auditor to evaluate their internal control and report them on the audit report.” The act put a new body in place to “watch over the work of auditors of public companies, called the Public Company Accounting Oversight Board, or PCAOB.” Another provision of SOX is that “accounting firms are not allowed to audit public companies or offer certain consulting services for the same client.” With SOX in place, there are penalties for anyone who violates the act’s provisions.

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Preceding the enactment of the SOX, the failures of certain corporations due to financial scandals resulted in significant losses to investors and creditors. The SOX was introduced to address the issues of accounting malfeasance by attempting to improve transparency. The act was authorized in the wake of public disgust aroused by corporate scandals that lead to the collapse of major firms like Enron and WorldCom. The main objective of the act was to reinstate public confidence in corporate financial statements. It was aimed to increase the accountability of the board of directors to shareholders and to improve the accuracy and reliability of financial disclosures.

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Like SOX, the SEC helps protect shareholders by ensuring companies are not engaging in “accounting fraud” or “providing false or misleading information” (Securities, 2014). A third safeguard is the Whistleblower Protection Act. The Whistleblower Protection Act provides protection to individuals who find evidence of potential

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1. Explain in your own words how SOX has impacted financial statement fraud. The Sarbanes-Oxley Act (SOX) was enacted in 2002 as a result of the numerous financial statement fraud perpetrated by major corporations from various industries. One of the many objectives of SOX was to create more independence between the financial auditors and executive management. Financial Statement fraud is usually perpetrated by executive management.

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Sarbanes-Oxley Act of 2002 (SOX) Before the establishment of SOX, there was no requirements or regulations regarding the reporting of internal controls. Prior to SOX, the only reason a company had to disclose any internal control deficiencies was if the company changed auditors, otherwise it was not required. Although, public companies did have the option to report on their effectiveness of internal controls voluntarily but very few

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Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act (SOX) legislation came into being on July 30th of 2002 and brought about major changes to corporate governance and financial practice in the United States. The Act was developed in response to a rash of corporate scandals involving companies like Enron,

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Enron which was the seventh-largest company in America at the time were involved in the scandal due to its accounting practices the company eventually collapsed. Many Enron executives were ultimately convicted of financial crimes for falsifying the company's assets, overstated its earnings and hiding liabilities. SOX requires a company’s chief financial officer to certify that its financial reports are accurate. All publicly traded company are required to have internal controls in place to confirm accuracy in financial disclosures. SOX makes it a crime to deceive shareholders of publicly traded companies by the filing of false financial reports.

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The Sarbanes-Oxley Act also is known as the SOX act, is an act passed in 2002 by United States Congress in retaliation to the billion dollar fradulent accouunting practices, scandals, and activities of corporations. It mandates that management creates internal controls and keep accurate reports on the accuracy of controls. Moreover, the SOX act mandates that senior management attests to the legitamacy of financial reports and statements. Likewise, the adequacy of internal control systems must be authenticated and monitored by independent external auditors. Failure to comply with any provisions of the act can result in steep fines and even imprsonment.

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The Sarbanes-Oxley Act of 2002 popularly known as SOX was born out of the devastating effects of the high- tech bubble burst and grueling fraud scandals that were witnessed at WorldCom, Tyco, and Enron. The act was enacted to strengthen corporate governance, minimization of conflict of interests and enhance the quality of auditing process in businesses entities (Gopalsamy, 2006). It was made to cure a series of accounting scandals that saw folding up of companies like Arthur Anderson which was one of the Big Five Auditing Firms. The Act was necessitated by the need to dissociate the responsibility for external auditor relationship from companies’ corporate management and bestowed it to committees created for independent auditing, which was

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Sarbanes-Oxley Act The Sarbanes-Oxley Act is an act that becomes handed by using the yank Congress in 2002 in a bid to protect the investors who consist of shareholder and different stakeholders from fraudulent accounting practices (Protiviti 2011). It turned into delivered to be by two main architects who're Paul Sarbanes and Michael Oxley. The Sarbanes Act majorly regulates financial practices and corporate governance.

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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.

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Enron Corporation Founded By Merger Huston Natural Gas With Internorth

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Enron corporation was founded in 1985 by merging Huston Natural Gas with InterNorth primarily focusing on maximisation of the interstate gas pipeline network in based in Houston, Texas, U.S. (https://www-emeraldinsight-com.ezproxy.uow.edu.au/doi/pdfplus/10.1108/03074350510769839). During the merging process Enron incurred a huge debt and the market was hugely deregulated as a result to survive in the industry it was compulsory to come up with a new business strategy. Therefore, Kenneth Lay founder CEO of Enron hired Jeffrey Skilling who was very talented and had experience in banking and asset management industry to come up with a solution. Later on he came up with his revolutionary idea of creating a gas bank where they would buy and sell gas from a network of suppliers to network of customers which was the solution of their debt and cash (https://www.journalofaccountancy.com/issues/2002/apr/theriseandfallofenron.html). Afterwards the deregulated markets allowed Enron to became one of the leading electricity, natural gas, communications and pulp & paper by placing bets on the future prices.

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