The Sarbanes Oxley Act was enacted to restore the investor’s confidence in businesses and to detect and prevent fraud on financial statements. As stated in the De Vay article, “the majority of SOX involves regulation of the accounting profession and the auditing and financial reporting process.” Enron was merged with Houston Natural Gas Co. and Inter North Inc. in 1985. The CEO of Houston Natural Gas, became Enron’s CEO and chairman. He changed Enron to become an energy trader and supplier. At that time, companies were allowed to place bets on future prices and Enron took advantage of this. The CEO, realized in 2000 that Enron wasn’t doing well and he used a mark to market accounting. This allowed him to measure the value of the securities they owned to current market value instead of book value. This allowed Enron’s books to look financially stable for investors while other businesses were losing money.
In another scandal, David G. Friehling was the outside auditor for Bernard L. Madoff’s securities firm (BMIS) during the Ponzi scheme and also handled Madoff’s personal tax accounting. David knowi...
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...d accountants to follow stricter guidelines to minimize these types of acts. Due to these types of scandals and fraud, accountant needs to reassess how they are auditing a company to ensure that they are able to catch these types of fraud or scandal occurring within an organization. Therefore, corporations who are implementing the risk based internal auditing structure within the organization have a better chance to avoid these types of scandals and fraud. Ultimately, the risk belongs to management and they should oversee what is happening within the organization. When an organization provides assurances that risks have been properly managed, investors are more likely to invest in this corporation. All of these companies mentioned above had one main thing in common, they had weak or no internal controls in place which resulted in misstated financial statements.
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