The Sarbanes Oxley Act Essay

1014 words - 4 pages

The misrepresentation of corporate finances has been a frequent news headline during the last ten years, and the negative impact of these actions has had a severe impact on the economy. The temptation can be overwhelming for corporate leaders to step over the legal line in attempts to maximize corporate earnings, which also affects their financial compensation. Companies that ultimately collapse from these inappropriate financial behaviors, eventually put a heavy burden on the economy and many sectors of society. Corporate fraud is defined as “violations of the Internal Revenue Code (IRC) and related statutes committed by large publicly traded (or private) corporations and/or by their senior executives” (Corporate check format of cite [#1]). Employees, lenders, investors, overall financial markets, and the communities in which theses corporations reside are all adversely impacted when one of these corporations fail. “Some of these problems evolve from the interpretation of complex accounting rules” (Six Years).(Sentence is out of place – put in SOX section?)
InterNorth, a leading affiliate of North Natural Gas, was formed in 1979. InterNorth and Houston Natural Gas Company merged in 1985 to form Enron Corporation. Kenneth Lay became CEO, and he moved the headquarters from Omaha, NE to Houston, TX shortly after the merger. By 1989, Enron had become one of the leading natural gas distributors in North America after acquiring a large of natural gas pipeline network. As energy markets became deregulated, Enron exploded into the energy market and was allowed to sell energy futures, which are contracts to deliver product at a future date. Enron continued to expand rapidly, moving into the water sector by establishing Azurix, and in 1995, they entered the European energy market. The company reported revenues of $101 billion at its peak in 2000 (verify date), and comprised of about 30,000 miles of gas pipelines, global electricity and water, and high-speed internet bandwidth. Fortune magazine named Enron “America’s Most Innovative Company” for six consecutive years and “100 Best Companies to Work in America” in 2000 (need to Cite [#1]).
It seems almost inconceivable that Enron declared bankruptcy in late 2001 “amid a flurry of accusations of misleading accounting, unreliable financial disclosure, and probable criminal behavior” (Corporate Aftershock verify citing [#2]). Enron’s financial statements reported massive revenue figures but very little profit. This disparity happened through the buying and selling of the same goods repetitively. A portion of this trading was done between Enron and partnerships that on the surface appeared to be independent corporations. “Each trade was classified as revenue at its full value, which means revenue was booked at gross value, not net value like it reported in other securities transactions” (Enron the Incredible verify citing [#3]). At that point in time, loopholes existed which allowed the...

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