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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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