Enron Scandal

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In the early 2000’s the economy was doing well and the stock market was also doing well. A company by the name of Enron was an up and coming company in Houston Texas. As explained in the article “the real scandal” Enron was created in 1985 by Kenneth Lay after combining companies Houston Natural Gas and InterNorth. Other executives provided false information and led Enron’s board of directors on fraudulent and high risk accounting practices (Enron, 2002). Because of this scandal and others like it the government and it agencies were forced to do an investigation concerning the unethical behavior and the amount of false information that was provided to make investors believe the company was more profitable then it currently was at that time. When investing in a company there is a lot at stake. When looking at investing investors want to know how the company is doing financially and in order for this to happen companies have to make their financial records public knowledge. Until the scandals such as Enron investors would have to look at the financial reports and have to believe that the information was true even though there was no proof that the information from a companies financial report was true until 2002 when an Act was signed into place to regulate the companies financial team and make them responsible for false information. Sarbanes-Oxley Act of 2002 According to Deng in the article “Auditors’ Liability, Investments, and capital markets: A potential unintended consequence of the Sarbanes-Oxley Act, To restore investors’ confidence in the reliability of corporate financial disclosures, the Sarbanes-Oxley Act of 2002 mandated stricter regulations and arguably increased auditors’ liability” (Deng, 2009). There many peo... ... middle of paper ... ...umentation as well as test to ensure effectiveness to prevent fraud by any company. Achieved Its Goals Although in recent years there has not been companies committing fraud to the likes on a company like Enron the success of the SOX Act has been argued to its rate of success. While helping to mandate the financial reports put forward by a company some believe that the Act has failed to ensure that honest reports and disclosures and now are made public knowledge. In the article the effect of section 404 of the Sarbanes-Oxley act on earnings quality Zvi Singer stated “we find that complying firms improved their earnings quality in the post-404 period more than the control firms. Specifically, we show that complying firms exhibited significantly larger improvement in earnings reliability as evidenced by a reduction in the absolute value of discretionary accruals.

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