Sarbanes-Oxley Act Of 2002: Internal Control Concerns At Enron

The accounting scandals that occurred at Enron and WorldCom were due in part to a lack of internal controls (Edmonds, Olds, McNair, & Tsay, 2012). Edmonds et al. (2012) stated that internal control within an organization is a process that ascertains reliable financial reporting, efficient operations, and compliance with the financial laws and regulations. In order to ensure that the internal control concerns experienced at Enron and WorldCom did not occur again, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) (Edmonds et al., 2012). The SOX Act requires firms to provide proof on their Securities and Exchange Commission filings of internal control mechanisms that are in place within the firms (Edmonds et al., 2012). The standards that are enforced by the SOX ACT include: control environment, risk assessment, control activities, information and communication, and monitoring. The provision that I feel provided the greatest impact is the standard where firms control their internal activities. This provision is imperative because it directly affects a firm’s “three legs of the stool.”

All three of these legs should remain balanced in order for a firm to maintain healthy operations (Brickley et al., 2009). In this, the assignment of decision rights appears to relate to control activities because upper-level management should maintain some control over the decision-making authority of lower-level management. This control could prevent detrimental decisions from being made. Another improvement that could be made to the SOX Act that could avail avert accounting scandals is to monitor how employees are