Now a days it seem as if every time someone opens a newspaper or reads the latest news update online, another corporate scandal has occurred. It's nothing new that companies and their executives are being charged with falsifying their earnings or financial documents for personal gain, but what is being done to prevent it? Although it may seem like these accounting scandals happen all the time, people fail to realize there are huge laws set in place to prevent these type of scandals from happening. One of the largest and most influential of these laws set in place to prevent falsified financial reporting and protect the public is the Sarbanes Oxley Act (SOX), which was implemented immediately after the Enron corporate scandal in 2001. The Sarbanes Oxley Act changed corporate America for the better, by giving rise to stronger more ethical policies, restructuring and enforcing stronger corporate governance and corporate accountability, and redefining financial disclosure.
Before a person can understand the true affect and changes brought about by the Sarbanes Oxley Act, they must first understand the details of the Enron scandal and how Enron's executives falsified their financials in order to compare the pre-Enron vs. post-Enron eras of corporate America. The Enron scandal, which led to the collapse of Enron Corporation in 2001 was the largest corporate scandal to date and is still seen as one of the largest in history today (Jickling). In December of 2001, Enron filed bankruptcy with $62 billion in assets; just one month after their auditor gave the company a clean report (meaning their financial statements looked good) (Buckstein). The company seemed like a healthy giant, but behind the curtains, Enron's' executives, filled with bad business ethics and greed were manipulating the company's financial statements to hide its debt and overstate its profits (Jickling). Investigations showed that they ended up overstating the company's profits by about $538 million (90%) and failed to recognize some $628 billion in liabilities (Buckstein).