|Regulatory Requirements||Enron’s Scandal Factors|
|Members of the Boards of Directors|| || |
|External Auditors|| || |
|Enron’s Managers|| || |
Table 1. Direct correlations regulatory requirements from the Sarbanes-Oxley Act and factors associated with Enron scandal.
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Preventing Incidents Similar to that of Enron
Enron’s financial falsification that involved the board of directors, managers, and external auditors is a lesson for the entire business community. After the scandal with Enron, business schools began to discuss ethics as an integral part of any company. The more transparent a firm, the better the market understands what happens with it. In this regard, the focus on corporate culture, the code of ethics, some non-material incentives, and reputation seem to be missing in the Sarbanes-Oxley Act. Accordingly, the tools of society that measure and record the above elements are essential and may include business journalists, analysts, rating agencies, etc. (Markham, 2015). The regulation regarding corporate culture would be a valuable advantage to enhance the given act.
There have been several changes with auditors since audit and consulting were divided, and auditors’ rotation was introduced. Suggesting that auditors target control at the level of the entire organization, especially in large accounts, serious processes and procedures where violations can lead to significant losses should be the object of the mentioned act. The advantage of the internal audit before any other services of a company is its independence ensured by the structure of subordination and specific relationships with management as well as a unique knowledge base and experience accumulated during the years of audit (Markham, 2015). The above advantages would allow internal auditors and employees of a company to act solely in its interests and, at the same time, remain formally and actually independent in assessments and recommendations. By viewing a company as a single organism and conducting work on risk assessment, specification of weaknesses and strengths, and the preparation of relevant recommendations, internal audit seems to ensure continuous effectiveness.
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Markham, J. W. (2015). A financial history of modern US corporate scandals: From Enron to reform. New York, NY: Routledge.
Neblett, A. C. (2003). Overview of Sarbanes-Oxley Compliance. Commercial Lending Review, 18(6), 42.
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