ARTHUR ANDERSON CASE

Arthur Anderson: Questionable Accounting Practices”



Arthur Anderson: Questionable Accounting Practices

Review the mandated requirements for legal compliance (from chapter 4) and determine which requirements apply to the Arthur Anderson case.

There are five categories that separate the mandated requirements for legal compliance. Two directly apply to the Arthur Anderson case. Those requirements include (1) protection of consumers, and (2) incentives to encourage organizational compliance programs. When I read the text, the examples which were given were all about making sure that people were not taken advantage of as a result of an entity's business practices. The mandated requirement, incentives to encourage organizational compliance programs, speaks directly to the Arthur Anderson case. Our text states, “Gatekeepers such as lawyers, financial rating agencies and even financial reporting services must have high ethical standards.” High ethical standards don't just happen they are enforced. Without compliance programs, loopholes are created for the dishonest.

Discuss how the issues with the Arthur Anderson case may have played out differently if the Sarbanes-Oxley Act had been enacted in 1999.

The provisions of Sarbanes-Oxley Act help minimize the likelihood of auditor failing to identify accounting irregularities by the following requirements: 1). Improving the internal control. Auditors comment on the internal control of the firm should be reported. 2). Reinforcing supervision for financial irregularities. This act boosts to establish an independent the Public Company Accounting Oversight Board, which is responsible for overseeing the performance of the certified public accountants and the accounting firm. 3). Strengthening the independence of auditors. It means that the act restricts auditors to audit activities only. 4). Encouraging financial disclosure. It also provides whistle-blower protection. 5). Increasing the penalties of ethical and legal misconducts. There are severe monetary and criminal punishments imposed on those auditors that give false statements.

The Sarbanes-Oxley Act also creates stricter penalties for accountants and corporate officers who are convicted of being involved in fraudulent acts. As noted in an article in the CPA Letter, the legislation “establishes harsh penalties for securities violations, corporate fraud and document shredding” (Landmark accounting reform, 2009). The fines imposed for such violations are now much higher than they were in the past. Some of the money collected by fines will be used to establish an “investor restitution fund.” This fund “will enable the SEC to compensate shareholders who are victimized by fraudulent executives” (Condon & Nagle, 2010). The Sarbanes-Oxley Act also increases the prison sentences for those who are convicted of committing accounting-based acts of fraud. Another change brought about by the Sarbanes-Oxley Act is found in the increased time permitted for victimized investors to file lawsuits against the companies that bilked them. In the past, investors were allowed one year to file a suit after discovering that a fraud had occurred. In addition, the previous law gave stockholders three years in which to file a lawsuit after the actual act of fraud had occurred. As a result of the Sarbanes-Oxley Act, these time limitations have been ...