Description
The textbook includes information regarding Enron Corporation and Sarbanes Oxley. Using the search terms to search the textbook and with other supporting research, identify at least three internal control issues exhibited in the demise of Enron and their external accounting company, Arthur Anderson.
Identify at least three important elements of the Sarbanes Oxley Act that attempted to address these issues.
Finally, give your informed opinion as to whether or not the Sarbanes Oxley Act fixes the financial issues of the Enron collapse.
Make sure you include and use a minimum of four peer-reviewed, academic, or business resources, plus the textbook in your paper.
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Running head: ENRON CORPORATION AND SARBANES VOXLEY
Enron Corporation and Sarbanes Oxley
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ENRON CORPORATION AND SARBANES VOXLEY
Enron Corporation and Sarbanes Oxley
The complete demise of Enron Corporation contributed to the introduction of significant
professional changes in accounting. Ethical malpractices related to fraudulent recognition of
revenue and similar manipulation of financial statements were the defining factors that translated
to the organization's total collapse. Enron was a commodity, energy, and service organization,
and it is its collapse concerning the ethical malpractice that greatly drummed up support in the
implementation of the 2002 Sarbanes-Oxley Act. The Act included the development of an
accounting board that provided oversight to public companies, overseeing auditors through a
regulatory agency, and also the Act was meant to ensure total compliance of the requirements of
the Act by every company. The 2002 Act governs the accounting board that oversees accounts of
public companies to establish professional and auditing standards of practice for public
accounting companies registered in preparing an audit report issuing (Franklin et al. 2018). The
accounting board (PCAOB) regulates how traded firms are audited and presents requirements
and ethical standards that guide professional accountants in working with traded companies. The
essay will thus look into Enron's demise by addressing the internal control issues and their
external accountant Anderson and the changes that the SOX effected on public accounting firms
after the fall of the company.
Internal Control Issues
Top Management Compensation
Like in many corporations in America, the management of Enron was highly compensated
through stock options. Heavy application of stock-related awards connected to a short term price
in stock explains Enron's management focus on creating expectations that lead to the rapid
growth and the efforts to puffing up earnings reported to realize Wall Street expectations. In the
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ENRON CORPORATION AND SARBANES VOXLEY
proxy statement of 2001, Enron had noted that in 60 days related to February 15, which is the
proxy data, several awards in stock options would be exercisable; the stock options were related
to Kenneth Lay with shares of 5,285,542, Jeff Skilling with shares of 824,038, and directors and
officers combined with a share of 12,611,385 (Franklin et al. 2018). By December 31 of 2000,
Enron had accumulated a record 96 million in outstand...