Sarbanes-Oxley Act Sarbanes-Oxley Act

Topics: Enron, Public Company Accounting Oversight Board, Sarbanes–Oxley Act Pages: 6 (2233 words) Published: December 16, 2012
Sarbanes-Oxley Act
Assignment1: Sarbanes-Oxley Act
Sieressa Woods
ACC 403: Auditing and Assurance
August 19, 2012

Assignment: 1 Sarbanes-Oxley Act Say Sarbanes-Oxley Act (SOX) to anyone who is in the field of business and they will be able to tell you a story of Enron’s fraud and that it was because of Enron fraud SOX was created. Enron case was the case where the leaders were accuse of fraud because of the $1.2 billion reduction of owners’ equity in 2001. “Enron’s founder Kenneth Lay and CEO Jeffrey Skilling were accused of misleading investors about Enron’s financial health, including artificially inflating earnings, overvaluing assets, hiding losses, and tapping reserves to meet or beat earnings forecasts” (Sanchez & Zhang, 2012, p.4). The two accused believed that there was no way for them to hold responsible for knowing every little financial transaction that occurred. This case relied heavily on the expert opinion of forensic accountants to prove whether the leader committed fraud. The defense accountants believed Enron had followed generally accepted accounting principles on disclosing earnings and losses. The accountants held the view that the officers knowing and intentional committed fraud was based on opinion and that “reasonable minds (the prosecution) could differ”. The expert accountants believe that even if the mistakes ($1.2 billion dollar mistake) was known to the public the average user will still draw to the same conclusion as if the mistakes were unknown. The prosecution auditors believed that Enron overvalued their underperforming assets, such as overvaluing a power plant by $1 billion, and that is why the company had to reduce the shareholder equity by $1.2 billion. The accountants for the defense counter this accusation by saying that some of the underperforming assets were items that Enron is currently in ligation and that is why they are overvalue. The prosecution last question was whether the accountants knew the intent of Enron officers to commit fraud, he relied intent is not part of the rule” only materiality is a part of the rule. Even with the expert opinion the defendants were found guilty. One of the reasons is because the defense accountants did not interview any of the company staff to get an ideal of whether fraud existed and the prosecution use former an currently staff as witness for the fraud. Lays was convicted of ten counts and sentence to 20 to 30 years of prison. Lays never has the ability to serve the sentence because he died and judge removed his conviction. Skilling was convicted and is currently serving his sentence. Other executives were found guilty or pleaded guilty after the verdict was heard from the top executive’s cases. The company’s auditing firm, Arthur Andersen, who was known for trying to destroy financial documents, was convicted of obstruction of justice then later it was eventually overturn. In spite of the conviction being overturn the company still went out of business due to their association with the company and perception the public had about the company. As a result congress passed the Sarbanes-Oxley Act of 2002 “ to help deter financial statement fraud and prosecute those who engage in it” (Sanchez & Zhang, 2012, p.5). The guilty verdict was a welcoming sign to the investor who were fooled by the behavior of the Enron officers and it lead Congress to want to prevent fraud. Congress decided the best way to accomplish this was to have a guideline that reduce the fraudulent activity, make officers liable for falsified financial statements, increase investors’ confidence, and no longer make what should be included into the documents a matter of opinion to the public (which was the defendant’s defense). Congress did this when it passed the Sarbanes-Oxley Act...
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