Accounting Info. System PDF

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Accounting Info. System...

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The Enron and WorldCom Scandals The Enron and Worldcom showed a massive corporate greed and unethical accounting practices. Worldcom’s accounting fraud rooted from the US government’s deregulation of the oil and gas industry which allows more competition and also from the slow revenue growth and falling stock prices of the entity. These situations urged them to violate the ethical codes of accounting, to which, the fraud, embezzlement and illegal manipulations began. Worldcom’s lossess turned into profits to appear that the entity was still valuable when in reality, they were facing huge and devastating losses. The SEC revealed that Worldcom was suspicious because of their financial information that were not backed by any supporting documents. Corporate whistle blowing was also one of the reasons why the fraud was discovered. Worldcom’s contoller admitted to auditors that they are really doing unethical actions by not following accounting standards, which later on made them decide to file a bankcruptcy in 2001. On the other side, Enron Scandal happened because Enron was recording revenues which were actually not happened in its current operations. Enron was also defrauding its shareholders by using corporate funds invested by different companies to pay managements’ bonuses while experiencing issues of corporate failures and large debts that were only recorded on off-balance sheet accounts. Enron also skyrocketed its stock prices suspiciously which made SEC to investigate the Enron. Another reason why fraud was discovered was because of an internal whistle-blower. These scandals were the reasons of the birth of new set of regulations and legislation, which is the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act is a federal law that enacted a comprehensive reform of business financial practices. The 2002 Sarbanes-Oxley Act aims at publicly held corporations, their internal financial controls, and their financial reporting audit procedures as performed by external auditing firms. The law was passed in response to public outrage over several major accounting scandals, including those at Enron and WorldCom and other numerous restatements of financial reports by other companies, which clearly demonstrated a lack of oversight within corporate of the United States. The Sarbanes-Oxley Act of 2002 has the objective of strengthening the corporate oversight and improving internal coporate control. This act wants to prevent the consequences of destroying, alteration, and fabrication of financial records and for trying to defraud shareholders. Moreover, to avoid repetition of fraud in the future,the Financial Accounting Standards Board (FASB) set levels of standard for corporate ethical conduct. FASB helps to increase the awareness of proper regulation and oversight to prevent corporate scandals. Another compliance measures to set was for the company’s board of directors to become more independent, strictly monitor the management, and quickly replace incompetent managers working in the entity.

Carlson, R. (2019, November 16). The Sarbanes-Oxley Act and Corporate Fraud. The Balance Small Business. https://www.thebalancesmb.com/sarbanes-oxley-actand-the-enron-scandal-393497...