Corporate governance Essay Example | Topics and Well Written Essays - 2750 words - 1

Corporate governance - Essay Example A staff of executives used of the American energy company. This prompted the adoption of the Corporate and Auditing Accountability, Responsibility and Transparency Act (commonly known as the SOX). Essentially, the Act was to mandate reforms that would fight corporate accounting fraud by enhancing corporate responsibility and financial disclosures. Further, for the sake of overseeing auditors, the Public Companies Accounting Oversight Board was also created by the Act. This paper will discuss the Enron case and research academic literature to evaluate the amendments to the code/legislation and determine whether they will resolve the issues of corporate governance as well as assessing the effectiveness of the changes. For the purpose of discussion, an overview of the Enron Scandal and the Sarbanes-Oxley Act will be given, followed by the evaluation of amendments to the code/legislation. The most notable causes of Enron’s downfall were associated with corporate governance, revenue recognition, special purpose entities and mark-to-market accounting. When the sale of natural gas was deregulated via legislation passed by Congress, Enron increased its prices and soon became the North America’s largest seller by 1992, earning $122 million before taxes and interest. However, poor financial reporting and accounting loopholes were used by the chief executive officer and the chief financial officer to conceal billions of dollars that had accrued as debt from projects and deals that had failed. Eventually, this led to the bankruptcy as the company executives continuously misled the audit committee and board of directors on matters concerning high-risk practices of accounting. Further, they also pressured their auditors, Arthur Andersen, to ignore such matters. Enron reported the entire value of all trades it conducted as revenue as opposed to reporting the cost of the products as the cost of goods sold and selling price as revenue (Salter 2008, p. 104). This aggressive