ipl-logo

Why Did Congress Pass The Sarbanes-Oxley Act Of 2000

1680 Words7 Pages

ACCOUNTING IMPACTS OF THE EARLY 2000S
CORPORATE SCANDALS

Prepared for
Craig School of Business
Department of Accountancy
CSU Fresno

Prepared by
Rachel Magdaleno
Business Accounting Major
CSU Fresno

December 6, 2017

Letter of transmittal TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION: CORPORATE SCANDALS IMPACT ON THE ACCOUNTING PROFESSION

This study was designed to review the corporate scandals in the early 2000s and examine how congress passed legislation which forever changed the accounting profession. The study focuses on addressing these questions:
• What corporate scandal pushed Congress to reform the law?
• Why did Congress pass the Sarbanes-Oxley Act of 2002?
• How has the accounting profession changed due to …show more content…

William Thomas gives the back ground on Enron in his article, “The Rise and Fall of Enron” which will be used throughout the background of this report. Enron was formed in 1985 as a result of Huston Natural Gas and InterNorth merging becoming a pipeline company that started with large debt and soon lost rights to pipelines. Kenneth Lay, CEO of Enron, knew he needed to reinvent his business plan in order to recover. With the help of Jeffery Skilling, Enron was able to come back with a reinvented business strategy that set them on fire. They created a gas bank which purchased from suppliers and sold to consumers, their money was made by the fees charged for their transaction services. The plan worked so well, Lay hired Skilling and put him in charge of his finance division. Within the finance division, employees were motivated with their employment to execute deals at high cost. Trading contracts began to include confidentiality clauses and for years this shady way of business allowed the company to thrive. Enron expanded in 1997 by purchasing Portland General Electric Corp. With using the same method of practice, Enron almost quadrupled its investment in the electric company by the end of that …show more content…

Enron was Andersen’s second largest client and they extended their services beyond auditing. Andersen was in charge of internal and external audits, they provided consulting and had offices within Enron. The relationship grew closer as former Andersen employees went to work for Enron as internal accountants. The regulate yourself and honesty is key theories were dramatically taken advantage of.
DISCUSSION: SARBANES-OXLEY ACT, THE IMPACT ON ACCOUNTANTS, INDIRECT BENEFITS
The review of this research has found that implementation of the new law was necessary and its benefits outweigh the extra costs and work involved. The reflection of the research will be outlined in these categories: (a) the Sarbanes-Oxley Act, (b) the impact on accountants, and (c) indirect

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

Pros And Cons Of Sarbanes-Oxley Act Of 2002

495 Words | 2 Pages

Sarbanes-Oxley Act of 2002 is a law enacted by US congress in July 30, 2002. The bill consists of 11 sections and was created as a reaction to high numbers of fraud and business misbehavior in major US corporations. The act clearly imposes responsibilities for the board of directors and defines the regulations all corporations have to comply with. The bill does not affect only US public companies, but it goes beyond that to over control companies under a US presence.

Read More

The Sarbanes-Oxley Act

296 Words | 2 Pages

The Sarbanes-Oxley Act of 2002 is a legislative response to a number of corporate scandals that sent shockwaves through the world financial markets. Some of the biggest issues involved Enron, Tyco and WorldCom. The Sarbanes-Oxley Act, commonly referred to as SOX, attempts to strengthen corporate oversight and improve internal corporate control. The main purpose of the Sarbanes-Oxley Act is to protect shareholders from fraudulent representation in corporate financial statements. Investors need to know that the financial information they rely on is truthful, and that an independent third party has verified its accuracy.

Read More

Explain Why Was The Sarbanes-Oxley Act Of 2002 Created

316 Words | 2 Pages

Why was the Sarbanes-Oxley Act (SOX) of 2002 created? Here are direct and indirect reasons. According to U.S Securities and Exchange Commission, the stock market develops due to “new economy” in the mid-1990s. The biggest gainers are persons who attempt to an undertaking in initial public offering(IPO) market.

Read More

Arthur Anderson's Involvement In The Enron Scandal

230 Words | 1 Pages

By the time the company declared bankruptcy, it had owed a whopping $22.1 billion to banks and its other investors. The company was tainted with corruption and deceit. Enron also had an external partner to carry out its unlawful actions. Arthur Anderson LLP, one of the most efficacious auditing companies in the US at the time [6], was under inspection for their involvement in the Enron Scandal. Before news of the bankruptcy had unraveled, the SEC (Security and Exchange Commissions) conducted a detailed investigation of the bank statement and financial of Enron.

Read More

Macroeconomics Chapter 1 Summary

547 Words | 3 Pages

This chapter used companies, such as Colombia, in the beginning and Seirra Corporation in the four financial statements. This chapter no only explained how it should be done, but it also explained the scandals and some that had scandals. Some of the companies talked about were Enron, WorldCom, HealthSouth, and AIG. Scandals are not good for corporations and businesses because it leads a potential investor or creditor to not trust the financial statements, because they were lies. Since scandals became an idea that was thought to be good, so corporations would get investors or creditors, it led to congress passing what the Sarbanes-Oxley Act (SOX).

Read More

Skilling V. Enron

539 Words | 3 Pages

Facts Kenneth Lay and Jeffrey Skilling established Enron in 1985. Enron was one of the largest corporations in America before the scandal in late 2001. Executives at Enron; Fastow, Lay, Skilling and other major players; Duncan, Berardino and Watkins at Enron showed profitability while pocketing the profits through “maintaining agency” over their earnings reports sent to their investors. They did this by not reporting any financial statements or any losses. Enron was forced to file for Chapter 11 bankruptcy in December 2001.

Read More

The Role Of Fraud In Accounting

1594 Words | 7 Pages

“Round-trip trading artificially inflates volume [of sales] and revenues, but in reality adds no profit” (Bostan & Grosu, 2010). When Wall Street Analyst Richard Grubman asked Enron’s CEO for the company’s balance sheet along with its earnings statements, Enron stated that they could not release them (Core, 2010, p. 273-287). As stated earlier, because of Enron’s unethical accounting practices, the company filed for bankruptcy, but it also had a tremendous effect on many other people. Investors lost millions of dollars, along with the price of Enron’s share, which dropped for $90 US to just pennies. At any given point in time, those involved in the ENron scandal knew exactly what was going on.

Read More

The Sports Exchange Marketing Strategy

1889 Words | 8 Pages

(The Costs and Benefits of Sarbanes-Oxley, 2014,

Read More

Arthur Andersen's Fraudulent Accounting Practices

852 Words | 4 Pages

In the case, Andersen was accused of assisting the fraud by continually issuing unqualified audit opinions on Waste Management’s materially erroneous financial statements (Sec.gov,

Read More

Arthur Andersen Research Paper

1194 Words | 5 Pages

It is difficult to say if this was one of the reasons for the several misconducted audits previous mentioned. But I argue that it probably had an impact. When the group no longer was united and spoke with one voice they lost some of their power while the clients gained in power the more consulting fees they paid. Instead of changing their books as xxxxx suggested to Enron, they requested to get him removed from anything that had to do with their company. The audit partner complied.

Read More

Enron Accounting Scandal Analysis

843 Words | 4 Pages

To further exacerbate the situation, employees that raised concerns over Enron’s management were demoted or fired hence creating a workplace full of distrust and paranoia, with no clear

Read More

Accounting And Business Ethics: Enron's Scandal

1658 Words | 7 Pages

Enron was a Houston-based natural gas pipeline company formed by merger in 1985. By early 2001, Enron had morphed into the 7th largest U.S. Company and the largest U.S. buyer and seller of natural gas and electricity. According to New York Times (2002), Enron announced a huge third-quarter overstating in its earnings by almost $600 million over five years. The Security Exchange Commission (SEC) then began an inquiry into Enron’s accounting practices on October 22, 2001. Enron filed for bankruptcy on December 2, 2001 and left all the investors and retirees with worthless stock.

Read More

Worldcom Case Summary

1079 Words | 5 Pages

They have produced a flood of various regulatory and legislative responses. Along with the Sarbanes-Oxley Act of 2002 and other similar regulations issued by the SEC now the New York Stock Exchange and the NASD both compel corporate CEOs and CFOs to certify the accuracy of financial statements filed with the SEC. This requires listed companies to genuinely adopt corporate governance guidelines or codes of ethics which specifically address the conduct of senior management, directors or officers. It forbids corporations to extend unnecessary credit to their directors or officers and also provides for forfeiture of profits and bonuses from sale of company stock if in case restatements have been made solely as a result of “misconduct” in financial reporting.

Read More

More about Why Did Congress Pass The Sarbanes-Oxley Act Of 2000

Related Topics

Open Document