At the beginning of the twenty-first century, the U.S. market and its investors were stunned by a string of corporate and accounting scandals. For several years, the Enron Corporation, an energy company, participated in a number of partnership transactions that lost the organization a substantial amount of money. In 2001, Enron reported that it had failed to follow generally accepted accounting practices in its financial statements for 1997 through 2001 by excluding these unprofitable transactions. In these erroneous financial statements, the organization reported large profits when, in fact, it had lost a total of $586 million during those years. Neither internal nor external controls detected the financial losses disguised as profits. The revelation of the erroneous financial reporting led to a collapse in the price of Enron stock. The price of Enron stock fell from $83 per share in December 2000 to less than $1 per share in December 2001. However, some of Enron’s managers made millions of dollars by selling their company stock before its price plummeted. Other investors experienced substantial losses, including Enron employees who had invested a large portion of their retirement portfolios in Enron stock.
Role of Arthur Andersen LLP The CPA firm of Arthur Andersen LLP, which had been one of the largest accounting firms in the world, served as Enron’s auditor throughout the years of erroneous statements. The firm allegedly “overlooked” Enron’s questionable accounting practices since it was making a large amount of money for providing Enron with consulting services and did not want to lose the consulting business. The firm was indicted by the U.S. Department of Justice, and in 2002, Arthur Andersen LLP was convicted of obstructing justice for shredding Enron-related documents requested by the SEC. (more…)
Popularity: 10% [?]
Sarbanes Oxley Act of 2002 created because several reasons, below the major reason this list taken from from Wharton Financial Institutions Center, an independently managed site at the Wharton School of the University of Pennsylvania.
The environment triggering corporate scandals
- Take over movement, equity compensation linked executives’ interest to the share price.
- Motivations to meet market expectations among concerns.
- Long term bull market effect (1994-2000),
- Specifically, the reasons for failure of gatekeepers’ e.g. Auditors, lawyers, analyst… in the scandals. (deterrence, bubble)
- Investors` position in that environment is also considered.
Enron Case, as a main model to enlighten the objectives of the SOA the short timeline of Enron’s fall and the comments about the role of participants provided.
- Enron when its stock price was $90 in August 2000, was America’s 7th largest company, (more…)
Popularity: 14% [?]
Some of disadvantage of Sarbanes Oxley that will make you confuse. Here is the list. The original list of 5 reason why implementing SOX is difficult can be found here.
1. Multi interpretation statement
SOX RCM Guidance is multi interpretation. If you hire a person from ABC audit firm to help you design RCM, than after a year we hire from DEF audit. I’m definitely sure that the result is will be different. Does it mean that the guy from ABC audit firm is smarter? No this is multi interpretation statement.
I’m definitely sure that a lot of question when designing SOX RCM, trust me, the multi interpretation statement is major source of a never ending meeting. (more…)
Popularity: 18% [?]
Since there is a lot of framework and methodology available, the company should choose the right framework and methodology that suitable for the company. Some guidance that could be used in these cases is the framework must:
1. Must be directed at the right target (more value from IT)
Since the target is for SOX compliance, the using COBIT for SOX sometimes more useful than using ISO 27001 for example. The management should measure the effectiveness using some of approach that based on the right target.
2. Must help to set the appropriate priorities,
Priority for SOX compliances are significant transactions. The chosen framework should be able to give more attention to significant transactions or activity. Selecting the appropriate priorities also would be confusing since there is a lot of interest between different departments.
3. Must be easy to use without requiring people to manipulate the system,
Framework must be easy to be understood by people from different department. Framework should also take to fulfill people aspiration to the IT. (more…)
Popularity: 20% [?]