Question

What is the relationship with the failed Enron Corporation and SOX?

Answer 1

Enron corporation was multi business venture corporation. Before filing the bankruptcy 2001 it was working in different sectors like Electricity , Gas and communications.

Many investors had invested theirs money in different ventures of the corporation.

This bankruptcy cost millions of dollars of investor's money and situation of US economy. As Enron had followed the money to market practice of accounting to reports assets at market value instead of cost value thus by overvaluing the assets .so investors had invested to order to earn high rate of return but reality was total opposite. with help of Arthur and Andersen one of big 5 public accounting firms Enron had executed this fraud. in order to ensure such fraudulent practice will not be carried out again in other corporation. Arthur and Andersen public accounting firms license is ceased by American Institue of certified public accountant and relevant state board of accountancy.

Meanwhile Us Congress had introduced Sarbanes-Oxley act in the year 2002.

The sarbanes oxley act has stringent the provisions of financial reporting and disclosure of public corporation

Sarbanes-Oxley act has introduced audit of internal control to strengthen corporate governance.

Now CEO and CFO has attest the financial statements of the corporation

Sarbanes- oxley act has established Public Company Accounting oversight board which forms standards for auditing public corporation and all public accounting firms have registered with PCAOB to audit public corporation. PCAOB monitors the quality control system of these firms to ensure such fraudulent way of reporting can be avoided.

As Enron fraud is responsible for introduction of sarbanes-oxley act to ensure fair reporting and disclosure in financial statements.