Reforming Corporate Scandal

Reforming Corporate Scandal

Auditing-ACC 403005016

February 22, 2011

Reforming Corporate Scandal

With major corporate and accounting scandals involving large, publicly traded companies, such as World Com and Enron, millions of people around the world, namely shareholders, lost a great deal of money. The United States’ financial credibility, in terms of its financial industry, took a gigantic hit when it was revealed that a large amount of companies lied about their revenue, misdirected funds and understated their liabilities. In the quest for corporate profits in order to maintain share price and investor confidence, many of these companies felt the pressure to mislead the public, ultimately contributing to their own doom. The Sarbanes-Oxley Act, a United States Federal Law enacted in 2002, was passed in order to prevent future incidents involving misrepresentation of financial statements. It either enhanced or provided new standards for U.S. public company boards, and accounting and management firms. It also led to the creation of the Company Accounting Oversight Board, which is tasked with overseeing accounting firms and their positions as auditors for public companies. (Garner, 36)

AUDITING ISSUE- BEFORE AND AFTER

One of the auditing issues that were changed after the Sarbanes-Oxley Act was passed was the conflicts of interest that developed between the auditing companies and the firms that they worked for. Arthur Andersen, a former member of one of the “Big Five” accounting firms, was one of the main reasons for the change, as it was partially held responsible for encouraging and ignoring many of the issues that led to the collapse of Enron (Garner, 45). Before the implementation of the Company

Accounting Oversight Board, the auditing firms were independently self-regulated. Often times, they did not necessarily have an objective viewpoint, as they did not only provide audit services. They also provided consulting work, tax advisement,...