The Sarbanes Oxley (SOX) act that was enacted in 2002 is one of the most influential and controversial acts that have ever become law. This act was sponsored by US senator Paul Sarbanes and US representative Michael Oxley. The main purpose of this act is to improve the accountability of managers to shareholders and to protect investors from fraudulent accounting activities that may be used by corporations.
The SOX act came into existence mainly because of the Enron scandal. Enron is a company that was born from the merger of Houston Natural Gas and InterNorth, a Nebraska pipeline company. Along with the merger Enron acquired a massive amount of debt. In order to solve this problem, Kenneth lay, then CEO of Enron, hired a firm to assist with creating a business strategy. The firm then hired a consultant name Jeffrey Skilling who proposed a revolutionary solution. He wanted to create a “gas bank” which would buy gas from suppliers and sell it to consumers. This way Enron could control both supply and price. This was just the beginning; the company would go on to create more divisions of Enron. In late 2001, it would become one of the biggest company’s in America to ever file for bankruptcy. The company filed bankruptcy under the weight of an accounting scandal that hid billions of dollars in debt. After Enron filed for bankruptcy the share price would go into a deep landslide. It fell from about $90 to less than $1 in a year.
As a result of the Enron scandal several parties would be prosecuted and convicted. Some of the most important to be convicted would be Arthur Anderson and Kenneth Lay. Arthur Anderson was the accounting firm that audited th ...