The Most Exciting Thing to Come Out of Enron! (and other corporate scandals)

This is something so captivating that Playboy, Lou Pai’s strippers, and Ken Lay conspiracy theorists can’t even shake a stick at it. That’s right, I’m talking about the Sarbanes-Oxley Act of 2002 that forever changed the way public corporations report earnings and shook up the auditing world. What is the Sarbanes-Oxley Act you may ask? Well, Sarbox or SOX as it is affectionately called in the business world, consists of 11 titles aimed at limiting conflicts of interest between auditors and clients, strengthening corporate accountability laws, and increasing penalties for people like our friends Kenny boy and Jeff.

With the collapse of Enron as well as large scandals at Tyco, Worldcom, and Adelphia, it was apparent that some reform of auditing practices and stronger penalties was necessary to restore investor confidence in American Public companies. Although several bills were floating around at the time, Senator Sarbanes’ (D-MD) and Representative Michael Oxley’s (R-OH) were ultimately reconciled and signed into law by President Bush on July 30th 2002. Many of the provisions in the bill address the problems we have highlighted in Enron during class discussion. The second title in the bill directly addresses the conflict of interest that using the same firm for auditing and consulting services represents and forbids firms from providing both services to the same client. The bill also imposes stricter disclosure laws on off-balance sheet items and stronger reporting requirements for other financial transactions. Another requirement imposed by the bill is more thorough disclosure from securities analysts. Finally, the bill requires the CEO and the CFO to sign financial reports promising that they are accurate and imposes heavy fines and strict penalties for failing to do so or lying.

Maybe this isn’t the most exciting thing to come out of the Enron scandal, but I would argue that given the reforms it has imposed, that it has had the largest impact on American Business and banking regulations since the 1930’s. So lets give a shout out to Ken, Jeff, Dennis over at Tyco, and Bernie over at Worldcom. Thanks guys for helping make this happen!

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2 Responses

  1. Standing by the old adage that “sex sells” with that first sentence?

  2. […] The Most Exciting Thing to Come Out of Enron! (and other corporate scandals) […]

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