Corporate Scandals And The Implact Of The Sarbanes Oxley Act

1472 Words Mar 18th, 2016 6 Pages
A LOOK AT CORPORATE SCANDALS AND THE IMPLACT OF THE SARBANES-OXLEY ACT OF 2002

I. INTRODUCTION

An economic boom filled with fraud, collapsed in the early 2000s with the unravelling of Enron in October 2001 followed by the implosion of WorldCom and many others big corporations. The downfall of these major companies led to a wide spread crisis of confidence in the financial markets. A crisis caused by executive greed was able to be magnified when the gatekeepers, the auditors, lawyers and analysts, responsible for keeping businesses in check, also fell to greed.
In response to this crisis and corruption, Congress passed the Sarbanes-Oxley Act of 2002. The passage of this law had immediate effect on business practices and the accounting profession in the USA. The act created reforms for the gatekeepers of the financial markets and the financial statements of corporations.

II. MAJOR EVENTS LEADING TO THE PASSAGE OF THE SARBANES-OXLEY ACT OF 2002

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and…
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