Sarbanes-Oxley and Enron Research Paper Example | Topics and Well Written Essays - 1750 words

Sarbanes-Oxley and Enron - Research Paper Example The accounting profession is self-regulated and its practitioners are supposed to follow the generally accepted accounting principles (GAAP). The GAAP framework was created in 1973 by the Financial Accounting Standard Board (FASB). In order for accounting to function properly the practice requires compliance of high ethical standards. Back at the beginning of the 21st century there was an avalanche of accounting scandals with the most notorious one being the Enron case. At the time investor confidence went down a lot as the credibility of the accounting profession came into question. In order to raise investor confidence the Securities and Exchange Commission (SEC) in alliance with the US congress passed a law called the Sarbanes-Oxley Act of 2002. The purpose of this paper is to describe the Enron case and to provide a detail analysis of the different aspects included in the Sarbanes and Oxley Act of 2002. The Enron Corporation is one of the worst cases of corporate corruption Ameri ca has ever seen. The situation was very odd due to the fact that Enron Corporation was regarded as one of most respected companies in the energy industry in the late 1990’s and at the beginning of the 21st century. ... e its collapse the firm was the 7th largest company in the United States with over 21,000 employees on payroll including an international operation that spread across 40 countries (Bbc). On December 2, 2001 Enron Corporation file for bankruptcy which at the time was the biggest bankruptcy in the United States history. The demise of Enron occurred due to a lack of corporate ethics. The unethical behavior started at the executive management level and spread throughout the organization like a virus. An example of how unethical the employees had become is the actions of the energy traders. The traders would intentionally shutdown power grids leaving entire towns without energy with the sole purpose of driving the price of energy up once the energy was turned back on. A lack of ethics and corruption was more evident at the executive management corporate level. The managers of the company were cooking up the accounting numbers of the firm. The corrupt managers colluded with its auditor, Au thor Anderson, so that they would look the other way and not revealed the fact the accounting numbers did not add up. A technique the firm used to hide losses and its debt was designing a complex web of partnership which used off-balance sheet accounting to alter reality. The firm completely mismanaged the pension fund of the employees. Instead of saving the pension money and using a sound diversification strategy the managers decided to use the pension fund to finance the firm’s illicit activities. The fund was depleted and invested solely in Enron common stocks. The managers of Enron prior to the full scandal being revealed decided to sell all their shares of Enron stocks at full market value; a few months later the Enron stocks became junk penny stocks. Insider trading is an illicit