Topics: Enron, Sarbanes–Oxley Act, Financial statements Pages: 5 (717 words) Published: April 27, 2014

Issues surrounding corporate accounting fraud emerged with great controversy during the Enron Scandal. Enron was most famously known for buying and selling energy, in addition to its creative business strategies. Keller ((2012)), "Enron used Wall Street magic to transform energy supplies into financial instruments that could be traded online like stocks and bonds. These contracts guaranteed customers a steady supply at a predictable price or at least that’s what Enron wanted investors to believe” (Enron for Dummies). The company misled the public and its investors into believing it was experiencing growth in revenue when in actuality it was losing big and hiding the losses behind bogus partnerships. The Chief Executives, Kenneth Lay and Jeffrey Skilling were collectively found guilty of fraud, conspiracy, insider trading and bank fraud Enron’s unethical practices led to substantial losses for its investors and highlighted the need for major regulatory reform. On July 30, 2002, President George W. Bush signed the Sarbanes-Oxley Act (SOX) into law. According to "U.S. Securities And Exchange Commission" ((2013)), “the act was designed to establish “reforms that enhance corporate responsibility, financial disclosures and to combat corporate and accounting fraud. Additionally, the act resulted in the creation of the Public Company Accounting Oversight Board which oversees the activities of the auditing profession” (Sarbanes-Oxley Act of 2002). The following sections express the compliance initiatives expressed within the SOX act: Corporate Responsibility for Financial Reporting

Section 302 requires that signing officers review all financial reports to ensure they do not contain any material omissions, untrue statements or misleading content. Officers are also required to ensure that financial statements accurately represent the financial condition of the organization. Signing officers must implement internal controls and report their findings in a timeframe consistent with stated guidelines. Additionally, officers must present a list of any deficiencies in the internal controls and report fraudulent activities or significant changes in the controls or related factors. “Organizations must not attempt to avoid these requirements by reincorporating their activities or transferring activities outside of the United States” Disclosures in Periodic Reports

Section 401 requires that financial statements are published and presented with accurate information. Such statements must include all material off-balance sheet liabilities, obligations or transactions. The Board is required to evaluate statements and report on off-balance transactions to ensure that generally accepted accounting principles are resulting in transparent reporting. Management Assessment of Internal Controls

Section 404 requires that issuers publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. These documents must include an assessment of the effectiveness of the organizations internal controls. Real Time Issuer Disclosures

Section 409 requires issuers to disclose to the public any information on material changes in their financial condition or operations. The information must be presented in an easy to understand format and must be supported by trend and qualitative information and include graphic presentations. Criminal Penalties

Section 802 imposes penalties of fines for noncompliance to SOX. In addition to being fined, violators can receive up to twenty years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. Should an accountant knowingly and willfully violate the requirements of maintenance of audits and review papers, he or she could face up to ten years imprisonment.

The predominant intent of SOX is to...

References: Keller, B. ((2012)). The New York Times. 
Retrieved from
U.S. Securities and Exchange Commission. ((2013)). 
Retrieved from
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