Corporate Scandals and the Sarbanes-Oxley Act of 2002
INTRODUCTION
Corporate Scandals also known as Accounting Scandals are business scandals that originate from the misstatement of financial reporting by the executives of public companies who are trusted to run these organizations. These misrepresentations happen through overstating revenues, understating expenses, Overstating assets or understating liabilities, use of fictitious and fraudulent transactions and direct falsification of financial statements to give a misleading impression of the companies' financial status. These misrepresentations are sometimes done with the cooperation of officials in other organizations or affiliates.
The accounting profession has been ridiculed by the corporate scandals that took place in the last decade. A few of the companies that are most commonly known for these scandals are Enron, Sunbeam, WorldCom and Cendant. Some of the leading public accounting firms have been accused of negligence in the execution of their duties as auditors to identify and prevent the publication of misrepresentations in the financial statements of the companies that they audited. The most commonly known accounting firm that was involved in the corporate scandals of the past decade is Arthur Andersen.
These corporate accounting scandals resulted in costing investors billions of dollars when the share prices of the affected companies collapsed. In response to the public outcry regarding loss of investments through these scandals, Jain and Rezaee (2006) stated that the US federal law known as the Sarbanes-Oxley Act of 2002 was enacted on July 30th, 2002 to strengthen corporate governance and restore investors’ trust in the capital market.
Objective of the study
This paper will define the corporate scandals of the past decade using Enron and their auditors Arthur Andersen as a case study. The paper will focus on the financial statement misrepresentation involving Enron and their auditors. The paper will further define the effects that these scandals
Corporate Scandals also known as Accounting Scandals are business scandals that originate from the misstatement of financial reporting by the executives of public companies who are trusted to run these organizations. These misrepresentations happen through overstating revenues, understating expenses, Overstating assets or understating liabilities, use of fictitious and fraudulent transactions and direct falsification of financial statements to give a misleading impression of the companies' financial status. These misrepresentations are sometimes done with the cooperation of officials in other organizations or affiliates.
The accounting profession has been ridiculed by the corporate scandals that took place in the last decade. A few of the companies that are most commonly known for these scandals are Enron, Sunbeam, WorldCom and Cendant. Some of the leading public accounting firms have been accused of negligence in the execution of their duties as auditors to identify and prevent the publication of misrepresentations in the financial statements of the companies that they audited. The most commonly known accounting firm that was involved in the corporate scandals of the past decade is Arthur Andersen.
These corporate accounting scandals resulted in costing investors billions of dollars when the share prices of the affected companies collapsed. In response to the public outcry regarding loss of investments through these scandals, Jain and Rezaee (2006) stated that the US federal law known as the Sarbanes-Oxley Act of 2002 was enacted on July 30th, 2002 to strengthen corporate governance and restore investors’ trust in the capital market.
Objective of the study
This paper will define the corporate scandals of the past decade using Enron and their auditors Arthur Andersen as a case study. The paper will focus on the financial statement misrepresentation involving Enron and their auditors. The paper will further define the effects that these scandals
References: C. William Thomas (2002), The Rise and Fall of Enron, Journal of Accountancy, [electronic version], Retrieved 11/29/2008. http://www.aicpa.org/PUBS/jofa/apr2002/thomas.htm James Murray (2007), Sarbanes-Oxley Act and Enron, [electronic version] Retrieved 11/30/2008. http://caaa.metapress.com/app/home/contribution.asp?referrer=parent&backto=issue,2,8;journal,8,33;linkingpublicationresults,1:300305,1 Terry Greene Sterling (2002), Arthur Andersen and the Baptists [electronic version], Retrieved 12/2/2008.