Enron Ethics Breakdown and How The Sarbanes-Oxley Act Has Helped Stop This Type of
Fraud and Violation.
Roberto Diaz
Colorado Mountain College
Correspondence concerning this article should be addressed to Roberto Diaz, Legal
Environment of Business student, Colorado Mountain College, Edwards, Co 81620.
Contact: rdiaz3@coloradomtn.edu
The Sarbanes-Oxley Act signed into law by George W. Bush and it became effective on
July 30, 2012. The act adopts tough provision to punish corporate and accounting fraud
and corruption. The Act enforces professional standards, ethics, and competence for the
accounting profession. It increases corporate financial disclosure and it increases penalties
for corporate wrongdoing. The Act also increases Securities and Exchange Commission
resources. The main purpose of the act is to restore trust, but to reduce information
asymmetry as well. The Act prevents companies from booking inaccurate transactions. If
executives fail to do this, they can face severe penalties. This penalties might include up to
twenty years in prison and/or a fine of five million dollars. The main focus of the
Sarbanes-Oxley Act was on large firms, but smaller companies are also require to
implement several parts of the Act as well. Sometimes small companies have to pay a
larger part of their revenues than large companies. Under title 1of the Act, all public
companies have to pay a fee to the Board of the Act. The most influential piece of the Act
is section 404. This section was added to the Act in 2004, two years after it was passed by
President Bush. “It mandates the periodic testing of internal controls.”() It also requires
companies to test procedures that are designed to monitor and prevent manipulation of
financial data. Part of all this requirements were pushed thanks to the frauds from Enron.
Enron’s ethics code was based on respect, integrity, and excellence. Enron failed to their
own code ethics by doing criminal acts. “The most common form of market failure is
information asymmetries—the business decision-maker knows something that the person
at the other end of the transaction does not.” (Berembein, 2002) The criminal acts included
fraud, money laundering, and insider trading. “A company whose board waived its own
code of ethics to permit a senior officer to serve as a general partner for partnerships that
were dealing with the company and which may have shredded documents when a Federal
investigation was imminent is not a candidate for sentencing guidelines leniency.”
(Berembein, 2002) Enron used various methods of make themselves look more profitable
