The Sarbanes-Oxley Act: Corporate America's Big Brother
In late 2001, Enron, one of America's largest energy producers filed bankruptcy. Enron created off-the-books partnerships and used aggressive accounting methods to hide massive debt and inflate the firm's bottom line which caused them to restate its earnings and debt to reflect a $618 million third quarter loss and a reduction in shareholder equity of $1.2 million (Brickley, 357), and when the news broke, Enron's auditor, Arthur Andersen, shredded all the documents relevant to the investigation and was indicted for obstruction of justice. At the time it was the largest corporate bankruptcy filing in U.S. history, but they wouldn't keep that standing long because WorldCom joined the race. WorldCom, the large telecommunications giant also sought Chapter 11 bankruptcy protection after it was revealed that its Chief Financial Officer made the decision to categorize monies paid to local phone companies to connect calls as long-term investments, with at least 15% of those connections not producing any revenue. It was revealed that over a three year period, WorldCom had hidden costs and inflated profits by more than $7 billion. Then in January 2002, Global Crossing, Ltd. also filed for Chapter 11 bankruptcy protection after the SEC, Department of Justice and the House began probing into whether they and other telecom carriers traded network capacity they may not have needed to make revenues appear artificially high. What each of these scandals has in common is that they all involved what has been called, "?skewed reporting of selected financial
transactions." (SOX-Online.com). The loss in public trust in accounting and reporting practices as a result ...