The Case of Phar-Mor Inc.
Fraud will always be an issue but it has been more prevalence in the past before there were any specific guidelines for business entities and accountants to adhere and conform to.
It is observed that those with higher positions in a company could let the power get to them at times and can use that power for their personal benefits. The Sarbanes-Oxley Act set standards to try to prevent future scandals like in the case of Phar Mor Inc., the Waste Management scandal and Enron.
Sarbanes-Oxley (SOX) was created to address the reoccurrence the likes of the several major scandals of the past. The nature of those past years scandals made it clear that preventative measures was a possible way to prevent any future scandals. And the efficacy of Sarbanes Oxley Act, many people as well as companies believed that fraud is easy to prevent.
In the case of Phar-Mor fraud, the company was involved in cover up and some accounts were created to hide the fraudulent activities. Bad inventory counts in the stores were made to help with the cover up and deceit about activities that cost hundreds of millions of dollars. (Williams, S.L., 2011)
The Sarbanes Oxley Act came to existence after numerous scandals on financial misappropriation and inaccurate accounting records. The nature of scandals made it clear there are possible measure that could be used to prevent future occurrence of financial scandals. And the existence and effectiveness of Sarbanes Oxley has caused
Throughout history and in our own time, legitimate accounting methods have been utilized to fraudulently engage in manipulating activities that results in illicit gains to the perpetrators and losses to individuals and financial institutions.
The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.
The main objective of the Sarbanes-Oxley act was to reduce fraud. So far that objective seem to have been obtain. Since SOX was enacted, there has not been a major domestic corporate financial scandal uncovered other than the options back-dating scandal that occurred before July 2002 (Jahmani & Dowling, 2008). It is a tax advantage because companies and investors are not losing money.
The Sarbanes-Oxley is a U.S. federal law that has generated much controversy, and involved the response to the financial scandals of some large corporations such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in auditing and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley. It was passed by large majorities in both Congress and the Senate and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms of all publicly traded companies in America. It also introduces criminal liability for the board of directors and a requirement by
Phar-Mor, Inc. applied a variety of different fraudulent reporting techniques to "cook the books" and commit one of the biggest corporate frauds in American history. A number of things were done to cover up the massive losses the company was taking including issuing fake invoices for merchandise purchases, making fake journal entries in order to increase inventory and decrease cost of sales, recognizing inventory purchases but then not accruing the corresponding liability, and over-counting merchandise.
PART C: It seems that whenever there is a corporate scandal, Congress responds by trying to strengthen the laws. Sarbanes-Oxley was passed to address the Enron accounting abuses. Review the video links and information about Sarbanes-Oxley found in the text and module. Many of the SOX provisions were contained in the Federal Sentencing Guidelines.
The Sarbanes-Oxley Act, also known as SOX Act, is a federal law that was passed on July 30, 2002, by Congress. This law was established to help set new or enhance laws for all United States accounting firms, management, and public company. The SOX Act would now make corporate executives accountable for their unethical behavior. This bill was passed due to the action of the Enron and Worldcom scandal, which cost their investors billions of dollars, caused their company to fold, and questioned the nations' securities markets.
The Sarbanes-Oxley Act was devised and designed to protect shareholders, as well as the public, from errors in corporate accounting and fraudulent business practices. All publicly traded companies, no matter their size, are required to comply with the terms of the Act. The Act was not only created to regulate corporate business practices, but also was created with the intention to help gain back the public’s trust in large, publicly traded corporations. The Act helps the Security Exchange Commission (SEC) in regulating companies and making sure these
In this paper, I will be discussing the Sarbanes-Oxley Act of 2002. I will divide the paper up into four sections: the history of the act, trace its implementation, discuss its impact on society, and analyze the efficiency of the act. The act itself is made of of 11 sections or “titles”. Each title is a major key point in the act which also goes into more depth by containing several sections within it. This paper will me going over all of the sections covered in the act, but will focus on the major sections that have proven this act to be efficient in its purpose and the negatives as well. This act has been quite controversial regarding its strengths and weaknesses, but it contains some key values that should be used as a
I believe the Sarbanes-Oxley Act of 2002 has been effective in managing the risks exposed through previous corporate fraudulent financial reporting scandals. The Sarbanes-Oxley Act makes fraudulent financial reporting a crime in which strong penalties can be enforced (Ferrell & Ferrell, 2013). This act also protects investors as corporations are required to be transparent with their finances as well as to create a code of ethics in which they are to abide. The purpose of the Sarbanes-Oxley Act, also known as SOX, is to make top executives responsible for the information that appears on the company’s financial documents. With the implementation of the Sarbanes-Oxley Act executives are required to know what is on financial statements and to
The purpose of the Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes. (Lander, 2004) The Act created new standards for public companies and accounting firms to abide by. After multiple business failures due to fraudulent activities and embezzlement at companies such as Enron Sarbanes and Oxley recognized a need for the revamping of our financial systems laws, rules and regulations. Thus, the Sarbanes-Oxley Act was born.
The Sarbanes-Oxley Act was passes in 2002 in response to a handful of large corporate scandals that occurred between the years 2000 to 2002, resulting in the losses of billions of dollars by investors. Enron, Worldcom and Tyco are probably the most well known companies that were involved in these scandals, but there were a number of other companies guilty of such things as well. The Sarbanes-Oxley Act was passed as a way to crackdown on corporations by setting new and improved standards that all United States’ public companies and accounting firms were and are required to abide by. It also works to hold top level executives accountable for the company, and if fraudulent behaviors are discovered then the executives could find themselves in hot water. The punishments for such fraudulence could be as serious as 20 years jail time. (Sarbanes-Oxley Act, 2014). The primary motivation for the act was to prevent future scandals from happening, or at least, make it much more difficult for them to happen. The act was also passed largely to protect the people—the shareholders—from corporations, their executives, and their boards of directors. Critics tend to argue that the act is to complicated, and costs to much to abide by, leading to the United States losing its “competitive edge” in the global marketplace (Sarbanes-Oxley Act, 2014). The Sarbanes-Oxley act, like most things, has its pros and cons. It is costly; studies have shown that this act has cost companies millions of
Sarbanes-Oxley Act, also known as SOX. Although SOX tremendously reduced accounting fraud and enhanced regulation from SEC, the side-effects will always happen: Opponents think implementing SOX will loses more than gains. The additional regulations is costly and makes public firms react negatively. Both of the cost and negative reacts would be the drawback to the economy (Jahmani, Dowling 57).
The Sarbanes-Oxley Act, enacted as a reaction to the WorldCom, Enron, and other corporate scandals, improved the regulatory protections presented to U.S. investors by adding an audit committee requirement, intensification of auditor independence, increasing disclosure requirements, prohibiting loans to executives, adding a certification requirement, and strengthening criminal and civil penalties for violations of securities laws.
The Sarbanes-Oxley Act is meant to bring accuracy and reliability of corporate disclosures by requiring certifications done to the quarterly and annual reports by the chief executive and financial officers. The Sarbanes-Oxley Act was enforced in July 2002 following a series of high profile accounting scandals. For all financial statements that were to be filed deadlines were provided to comply with the provisions