President Bush Signed The Sarbanes Oxley Act

3662 Words15 Pages
I. Introduction In the 2000s, the US capital market were disturbed by financial wrongdoing at numerous major companies, such as Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook public confidence in the US securities market. To restore public confidence in the reliability of financial reporting, the president Bush signed the Sarbanes-Oxley Act of 2002 on July 30,2002, stating it included “ the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt. The ear of low standards and false profits is over; no boardroom in American is above or beyond the law”. The SOX…show more content…
corporate governance spirit. II. Background of Sarbanes-Oxley Act Prior to 2002, the regulation of financial reporting were much more lax than they are currently. The lax regulation provided opportunity for companies to contribute fraud. There were many corporate scandals happened, including Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. Enron was certainly enough cited as the biggest scandal at that time and perhaps the catalyst for the SOX act. The downfall of Enron sufficient presents the combination of the issues at that time and the necessity of SOX act. Financial reporting measurement. Enron engaged in energy industry by providing services such as wholesale trading and risk management in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. According, when selling products, “merchant model" is used, which required merchants to report the selling price as revenues and the products ' costs as cost of goods sold. When providing service to customers, in contrast, "agent model" is required to report trading and brokerage fees as revenue, although not for the full value of the transaction. Instead, Enron selected more aggressive method -“merchant model" , to report the entire value of its trades as revenue. Enron 's method of reporting cause the revenue and profits overstated. Between 1996 and 2000, Enron 's revenues increased by more than 750%, rising from $13.3 billion in
Open Document