Accounting Scandals Destroy Lives

Accounting is the accounting method used to create the financial records of business transactions of an enterprise. Statements concerning the assets, liabilities and expenses of running a business are the basis of accounting. A corporate accounting scandal is the misuse or falsification of funds usually high number of individuals of a corporation. Overstate income and understate expenses and liabilities are the basis of accounting scandals. The accounting scandals are a type of fraud, which generally requires an investigation by the Securities and Exchange Commission in the U.S.. Many high-profile accounting scandals have been discovered around the year 2002. All large public accounting firms were found to be negligent in its audit functions in preventing the publication of falsified financial documents. Many times, the dollars involved in an accounting scandal in the billions. The accounting scandals hurt employees and investors of a company.

Enron is one of the biggest accounting scandals. Enron is an energy company that went bankrupt in 2001. Enron had more than 21000 employees. Enron made it appear as if they were making more money than it really was inflating the benefits against alliances with book and the manipulation of energy markets in California and Texas. Enron’s management tried to increase profits in order to raise the stock price as much as possible. As a result, Enron filed the largest bankruptcy in history. Shareholders of the company lost money and the employees lost their savings and 401k plans. Arthur Anderson was the accounting firm of Enron. To protect your account with Enron, Arthur Andersen signed Enron’s misleading accounting and related documents are destroyed when the Enron investigation began. As a result, Arthur Anderson went out of business. Enron CEO Ken Lay was indicted on 11 counts of securities fraud in 2004. Was expected to serve 20 to 30 years in prison, however, died of a heart attack center to the age of 64 while vacationing in Colorado in 2006. Jeffrey Skilling, the former president was also sentenced to 24 years in prison and ordered to restore $ 26 million of the Enron pension fund out of pocket.

In 2002, the Sarbanes Oxley Act was enacted to protect investors and restore confidence in large companies after the accounting scandals, many came to fruition. It was designed to improve the reliability and accuracy of business information. The act aims to establish an accounting oversight board for public companies. Sarbanes Oxley was appointed by Senator Paul Sarbanes and Representative Michael G. Oxley, who wrote the act.

Recovery from an accounting scandal is an enormous task that is not always successful. Recovery may or may not involve bankruptcy. Usually involves a restructuring of the company and put in the new direction to take the company in a positive direction again. Inaccurate earnings must be restated. Often, a fine must be paid. Large reductions in stock price are common. Recovery often takes years, the trust must be restored in the population.