Corporate Scandals Surrounding the Turn of 21st Century
Corporate scandals surrounding the turn of 21st century, creation of The Sarbanes and Oxley Act of 2002 and its effects on business environment.
The opening years of the twenty-first century were very challenging to the US economy. Not only the stock market reached one of the lowest levels since the crisis of 1930, but also several high profile corporate scandals shook the public trust. Insider trading, fraudulent financial reporting and other illegal practices caused investors to question reliability and integrity of the publically traded companies. Every week brought different news on misrepresentations at major American corporations and financial institutions. As soon as the report of accounting fraud at Enron reached public, media revealed similar scandals at WorldCom, Tyco and number of other publically traded companies. Improper revenue recognition, incorrectly recorded expenses, and other practices to manipulate financial statements along with briberies to auditors for covering the fraud caused the biggest concern. Investors could no longer rely on financial data presented by the management of those companies. Also auditors lost their reputation as they failed to perform an independent audit of the companies involved in the scandal. Arthur Andersen, the biggest Accounting firm at the time, is the best example of how lack of professional skepticism, ethics and integrity can literally destroy an accounting firm. In response to those issues, the congress took an action, and in 2002 Sarbanes and Oxley Act was passed. In July that year, the president George W. Bush signed the act and called it “the most far-reaching reform of American business practices since the time of Franklin Delano Roosevelt.” The reforms benefit the American economy in many ways, including restored investor confidence in the integrity of the capital markets, enhanced corporate disclosures, more regulated and strict accounting and auditing standards, increased emphasis on business
The opening years of the twenty-first century were very challenging to the US economy. Not only the stock market reached one of the lowest levels since the crisis of 1930, but also several high profile corporate scandals shook the public trust. Insider trading, fraudulent financial reporting and other illegal practices caused investors to question reliability and integrity of the publically traded companies. Every week brought different news on misrepresentations at major American corporations and financial institutions. As soon as the report of accounting fraud at Enron reached public, media revealed similar scandals at WorldCom, Tyco and number of other publically traded companies. Improper revenue recognition, incorrectly recorded expenses, and other practices to manipulate financial statements along with briberies to auditors for covering the fraud caused the biggest concern. Investors could no longer rely on financial data presented by the management of those companies. Also auditors lost their reputation as they failed to perform an independent audit of the companies involved in the scandal. Arthur Andersen, the biggest Accounting firm at the time, is the best example of how lack of professional skepticism, ethics and integrity can literally destroy an accounting firm. In response to those issues, the congress took an action, and in 2002 Sarbanes and Oxley Act was passed. In July that year, the president George W. Bush signed the act and called it “the most far-reaching reform of American business practices since the time of Franklin Delano Roosevelt.” The reforms benefit the American economy in many ways, including restored investor confidence in the integrity of the capital markets, enhanced corporate disclosures, more regulated and strict accounting and auditing standards, increased emphasis on business