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Homework answers / question archive / The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to a number of accounting scandals in major corporations that resulted in the loss of billions of investor dollars

The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to a number of accounting scandals in major corporations that resulted in the loss of billions of investor dollars

Accounting

The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to a number of accounting scandals in major corporations that resulted in the loss of billions of investor dollars. Choose one accounting scandal that precipitated this legislation and discuss whether or not internal controls (or lack thereof) contributed to the scandal.

 

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Among the major corruption scandal in the history of the United States is the Enron Scandal. The main company involved in the scandal was the Houston-based commodities, services, and energy corporation Enron. The Enron scandal led to huge losses and damages to the shareholders, employees, public, and investors. The occurrence of the Enron Scandal was contributed by both internal and external business factors (Rashid, 2020). The main limitation of the company was when it invested hugely invested the derivatives markets and made substantial losses. Therefore, the company used shortcut accounting methods to convert oil and gas stocks into financial assets. Hence, in a bid to satisfy its customers and thus made huge losses in the long run due to poor accounting. 

Moreover, the company’s management chose to hide the information of losses from the shareholders and investors. The hidden information was intended to minimize scrutiny and facilitate continued funding, which is against the law. Thus, after four years, its operations came to a halt leading to it being declared bankrupt (Benke, 2018). Therefore, many workers lost their share of retirement benefits; the company lost more 5then $70 billion in losses. Therefore, poor accounting coupled with poor management of the revenues greatly contributed to the losses and an eventual scandal at Enron company.