whistle blower

1505 Words4 Pages
bulb-icon

Recommended: Enron question

Along with Enron and WorldCom scandals exposed, the investors confronted massive loss and lost the confidence in financial statements. In order to protect investors from financial fraud and restore their confidence, the US Congress passed an act in 2002- the Sarbanes-Oxley Act of 2002. Through the Sarbanes-Oxley Act, the improvements occur on the independence of auditors and accuracy of financial information. The Sarbanes-Oxley Act is primarily concentrated on fraud prevention in three aspects: the corporate governance; the improvements of auditing business and assessment of internal control. Starting with the corporate governance, in order to ensure the accuracy of financial disclosures and detect the internal fraud properly, the following actions required by the Sarbanes-Oxley Act: -Restrictions for CEOs and CFOs. According to the Sarbanes-Oxley Act Section 302, specific certification in financial reports is required to make personally by CEOs and CFOs. The main responsibility of CEOs and CFOs is ensuring the accuracy of the financial disclosures. Any false certification and unethical actions caused by the CEOs and CFOs may lead they face the risk of reimbursing the ill-gotten gains and criminal penalties. In the case, Scott Sullivan-the CFOs of WorldCom transferred normal operating lease expense to the balance sheet as an asset. Scott could not assure the accuracy of the financial statement and violated the requirements. Once Cynthia exposed the issue to the audit committee, Scott faced the indictment by a grand jury in August 2002. In order to avoid t...

... middle of paper ...

...revention, it also leads to the negative aspects. The principal disadvantage of the Act is the Accounting and Auditing costs issue. In order to avoid a conflict of interest, internal control process is required by Section 404 to separate the companies' accounting department from its finance division. In addition, this section also requires the company to issue the annual internal control report assessing the efficiency of the internal control process and the reports have to be examined by the external auditors. Therefore, more accounting costs are imposed on companies. Big Four indicated the audit fees would increase by 25% to 30% for complying with the Sarbanes-Oxley Act. This will lead to more auditing cost especially for small companies, they will need to pay more fees to the Big Four for auditing under the new Sarbanes-Oxley regulations.

Show More
Related

  • Internal Controls and the Sarbanes-Oxley Act

    782 Words  | 2 Pages

    The Sarbanes-Oxley Act of 2002 (SOX) was named after Senator Paul Sarbanes and Michael Oxley. The Act has 11 titles and there are about six areas that are considered very important. (Sox, 2006) The Sarbanes-Oxley Act of 2002 made publicly traded United States companies create internal controls. The SOX act is mandatory, all companies must comply. These controls maybe costly, but they have indentified areas within companies that need to be protected. It also showed some companies areas that had unnecessary repeated practices. It has given investors a sense of confidence in companies that have complied with the SOX act.

    Read More

  • Sarbanes-Oxley Act (SOX)

    1765 Words  | 4 Pages

    In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.

    Read More

  • What Are The Pros And Cons Of The Sarbanes-Oxley Act

    174 Words  | 1 Pages

    In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.

    Read More

  • Between a Rock and a Hard Place: The Erosion of Privilege and the Duty of Confidentiality

    2032 Words  | 5 Pages

    A possible flaw of Sarbanes-Oxley is it failed to put up any resistance in thwarting the financial crisis. While the degree to which fraudulent behavior can be traced to the roots of the Great Panic of 2007 will likely be up for eternal debate, it might be telling that Sarbanes-Oxley effectively did nothing. It seems this could indicate that stronger incentives for whistleblowers (such as Dodd-Frank and perhaps other whistleblower protection regimes) are very necessary given the extreme social costs. This conclusion may be hasty, however, given the short time period between the enactment of Sarbanes-Oxley and the crash. Not only is the status of Sarbanes-Oxley still in flux over a decade later, but one has to consider the substantial learning and switching costs associated with a regime with such a substantial ruach. Certainly, this is not to say that additional protections may in fact be necessary given the putative reluctance of lawyers to report fraud, but Sarbanes-Oxley likely needed more time to really crystalize and provide some level of predictability before it can be declared a bust.

    Read More

  • Enron Corporation: The Downfall Of Ethical Behavior In Business

    784 Words  | 2 Pages

    CEO Jeffery Skilling and Kenneth Lay, the CEO prior to Skilling, were taken to trial. They were both found guilty of committing multiple types of financial crimes, and sentenced to 24 years in prison. CFO Andrew Fastow was also taken to trial and was found guilty and sentenced to 10 years in federal prison. The collapse of such a large corporation led to changes in financial controls. U.S. Congress passed the Sarbanes-Oxley Act in 2002. The SOX Act protects investors from deceitful accounting actions by companies (4). The Financial Accounting Standards Board increased its ethical behavior. FASB is responsible for generally accepted accounting principles, which provides standards for financial statements of publicly traded companies. These changes brought to life after the Enron scandal have decreased fraud and increased investor confidence. Although the acts that Enron committed were immoral and destroyed thousands of lives, it has lead an increase of controls and compliance, preventing something like this from happening in the

    Read More

  • Sarbanes Oxley Act SOX

    1881 Words  | 4 Pages

    After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.

    Read More

  • Accounting Fraud, the Investor and the Sarbanes Oxley Act

    1981 Words  | 4 Pages

    Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).

    Read More

  • Worldcom Case Study

    1575 Words  | 4 Pages

    In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.

    Read More

  • AICPA Code Of Professional Conduct

    1359 Words  | 3 Pages

    The law requires auditors to report any fraudulent activities discovered during the course of an audit to the SEC. This is when Article I of Section 51 of the AICPA Code of Professional Conduct comes into play. The auditor may uncover illegal acts or fraud while auditing the financial statements of a company. In such instances, the auditor must determine his or her responsibilities in making the right judgment and report their discovery or suspicions of the said fraudulent activities. Tyco International is an example of the auditors’ failure to uphold their responsibilities. Tyco’s former CEO Dennis Kozlowski and ex-CFO Mark Swartz sold stocks without investors’ approval and misrepresented the company’s financial position to investors to increase its stock prices (Crawford, 2005). The auditors (PricewaterhouseCoopers) helped cover the executives’ acts by not revealing their findings to the authorities as it is believed they must have known about the fraud taking place. Another example would be the Olympus scandal. The Japanese company, which manufactures cameras and medical equipment, used venture capital funds to cover up their losses (Aubin & Uranaka, 2011). Allegedly, thei...

    Read More

  • Remembering the Frauds at Enron and WorldCom

    2739 Words  | 6 Pages

    "This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.

    Read More

  • Edward Snowden: Traitor or Whistleblower

    889 Words  | 2 Pages

    Edward Snowden. This is a name that will be in the history books for ages. He will be branded a traitor or a whistleblower depending on where you look. Many Americans feel that Edward Snowden is a traitor who sold the United States’ secrets aiming to harm the nation. Others believe that he was simply a citizen of the United States who exercised his right to expose the government for their unconstitutional actions. It is important to not only know the two sides to the argument of friend or foe, but to also know the facts as well. My goal in this paper is to present the facts without bias and to adequately portray the two sides of the argument.

    Read More

  • The WorldCom Accounting Scandal

    1587 Words  | 4 Pages

    Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2.

    Read More

  • Corporate Accounting Fraud

    1084 Words  | 3 Pages

    The company concealed huge debts off its balance sheet, which resulted in overstating earnings. Due to an understatement of debts, the company was considered bankrupt in 2001. Shareholders lost $74 billion and a lot of jobs were lost because of the bankruptcy. The share prices of Enron started falling in 2000 and in 2001 the company revealed a huge loss. Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such

    Read More

  • Tyco Case Study

    2321 Words  | 5 Pages

    The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.

    Read More

  • Enron: Case Review: Smartest Guys In The Room

    946 Words  | 2 Pages

    For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.

    Read More

More about whistle blower

Open Document