In the late 1990s U.S. stock markets soared to new highs on optimistic expectations. Few observers would have predicted the coming financial scandals that were soon to afflict U.S. financial markets.
- Restatements of Previously Published Financial Statement
- The best indicator of possible accounting and auditing failure is when a corporation restates its previously issued financial statements.
- There were an alarming number of restatements in the late 1990s and early 2000s, often accompanied by accounting scandals involving huge sums
- Asleep at the Switch
- There is plenty of blame from the corporate scandals for the abject failures of all the gatekeepers responsible for safeguarding the integrity of large corporations, namely:-
- Boards of directors
- Audit committes of the boards of directors
- Regulators (SEC)
- Bond rating agencies
- Major institutional stockholders
- CPA
- Independent audit firms
- The Remedies
- In 2002 the U.S. Congress passed the Sarbanes-Oxley Act (referred to as SOX) in response to the flood of corporate frauds.
- SOX strengthens existing law and significantly increase penalties for violations.
One thing has not changed. Our economy and our society are as dependent on rthical behavior as they ever were. On the one hand, ethics cannot be forced upon the unwilling. On the other hand, unethical behavior can be punished with greater force. That is te main accomplishment of SOX.
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