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Accounting Scandals: With the accounting scandals in 2002 and 2003, many have called for increased government regulations. Will increased regulations help to reduce the kinds of scandals seen in recent years? Why or why not?
The accounting scandals at Enron and WorldCom that implicated such trusted accounting firms as Arthur Anderson did result in more stringent government regulation of the accounting process. Google the phrase 'accounting scandals of 2002' and in virtually every web search engine one types this phrase, the words 'Sarbanes-Oxley Act' appears, including software is designed to comply with the accounting procedures required by this recent, landmark act. But what does the Sarbanes-Oxley Act mean, a sixty-six page act designed, according to the stated purpose of the law, to ensure full and fair disclosure of corporate financial records, with the aim of protecting investors?
The act is considered the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting since the U.S. securities laws of the early 1930s, after the Great Crash. Sarbanes-Oxley stipulates criminal and civil penalties for securities violations. Also, it mandates auditor independence from the interests of the firm, meaning that accountants cannot have a financial interest in the success or failure of the firm. Additionally, it mandates the certification of internal audit work by external auditors and mandates increased disclosure regarding executive compensation, insider trading and financial statements, in the interest of making more information public to investors. ("Sarbanes-Oxley Compliance," Technet 2005) Although the act is not a panacea, increased objectivity on the part of auditors and greater insistence on free and fair disclosure on the part of firms will hopefully ameliorate the some of the hiding of vital information that created the climate of secrecy within the firms of Enron and WorldCom that helped give rise to the 2002 scandals.
Works Cited
Sarbanes-Oxley Compliance." (2005) Technet. Retrieved on 23 Oct 2005 at http://www.techlistings.net/xlist/tech/bizsoft/compliance/sox?id=1
Sarbanes-Oxley. (2002) Law retrieved by findlaw on 23 Oct 2005 at http://news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf
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