Chapter 2 ACC 260 - 55 Governance, Accounting, and Auditing...

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Unformatted text preview: 55 Governance, Accounting, and Auditing Reform, Post-Enron Chapter Two Purpose of the Chapter Enron and the subsequent Arthur Andersen and WorldCom fiascoes have trig- gered a sea change of new expectations for governance and the accounting profession in United States and Canada, and are in the process of informing expectations around the world. These fiascoes created such a serious crisis of credibility in the corporate accounting, reporting, and governance processes that that U.S. politicians created new frameworks of accountability and gover- nance within the Sarbanes-Oxley Act to restore sufficient confidence to allow capital markets to return to normal functioning. In essence, the fiascoes acceler- ated and then the Sarbanes-Oxley Act crystallized heightened expectations for ethical behavior by businesspeople and members of the accounting profession. Understanding the issues, principles, and practices involved in these new expec- tations is essential to the anticipation and consideration of what will be appropriate future governance and behavior for corporations and professional accountants. Faced with applying a stream of new guidelines and regulations, including many spawned by the Sarbanes-Oxley Act, businesspeople and professional accountants will find their task facilitated by understanding their essencethe ethical under- pinningsof the new initiatives. Governance and Accountability Reform Overview and Timeline of Events and Developments Multiple huge shocks generated a crisis of investor confidence in corporate and professional ethics that underpin North American capital market values and the trust that allows modern commerce. President Bush and leaders around the world were calling for answers and solutions to ensure compliance with fair values that the public could support and the public interest demanded. Ultimately, corporate governance and the accounting profession were shown to need reform to restore the trust and credibility needed for financial markets to work effectively. In mid-October 2001, vaunted giant Enron restated manipulated earnings, and on December 2 filed for bankruptcy, destroying billions in value especially of retirement investmentin the process. Amid stories of huge sham and fraudulent off-statement transactions, it became clear that senior executives enriched themselves beyond belief while the board of directors and Arthur Andersen, the auditor, apparently were unaware or worse. Frequently, Enron executives claimed bad memories, ignorance, or the Fifth Amendment in front of Business & Professional Ethics for Directors, Executives, & Accountants, 4e, Brooks - © 2007 Thomson South-Western 56 Part One The Ethics Environment Senate and Congressional committees. Government and the SEC seemed at a loss to deal with the situation. ...
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