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At the turn of the century Enron was heralded as one of the most innovative firms to work for in
the country. Aracting many investors, employing some of the best minds around the world, and
admired for its long term pension plan for employees it seemed as if Enron was one of the nation’s most
successful companies. However, this information all proved to be false once the corporate fraud of the
company was made public in 2001. Shortly a%er the company filed for bankruptcy and ended up ceasing
operations completely in December of 2001. Aside from Enron various other accounting scandals and
corporate fraud cases took place from 1999-2002. These scandals led to the loss of billions if not trillions
of dollars to the market, along with collapsing stock prices. Many of the companies involved within the
scandals went bankrupt and out of business, along with the firm’s high level executives serving prison
time. The result of the scandals was much needed legislation to help fix the corporate abuse and help
restore faith in business and security markets to American public. In July of 2002 the Sarbanes-Oxley Act
was enacted, and signed into law by George W. Bush in October of 2002. The law was passed because of
the need to improve corporate governance and accountability within the firm, leaving those in power
positions at fault if fraud were to occur forcing those running a firm to make sure information is accurate.
The Sarbanes-Oxley Act has considerably improved corporate governance within the firm, vastly
improving the financial reporting process, all while protecting whistleblowers in the case of reporting
fraud.
Since the passing of the Sarbanes-Oxley Act corporate governance changed drastically within
firms. One of the most important creations the law allowed for was the Public Company Accounting
Oversight Board. This board oversees the independent auditors of public companies, ge4ng rid of the
self-regulating conflict of interest requiring true objectivity during audits. Under current regulations,
“Accounting firms that audit public companies must register with the PCAOB, and are subject to annual
or triennial agency inspections, depending on their size”(1). Mandating that accounting firms register with
the PCAOB allows for an overseeing board to make sure there is no conflict of interest between the
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accounting firms and large corporations. In the past accounting firms were notorious to report in a large
firms favor in order to get a good reputation for their own business, and to keep good relationships with
the corporations they worked for. The Sarbanes-Oxley Act also improves corporate governance and
relations between lawyers, the SEC, and executives within a firm. If lawyers see violations they are now
required to report the potential fraud and no longer have to hold back reports in fear of losing their jobs.
Under Sarbanes Oxley policy, “Lawyers report evidence of a material violation to the company’s CLO or
CEO. The CLO then must investigate the evidence and take reasonable steps to respond to the report. If
the reporting aorney isn’t satisfied with that response, the lawyer must then report the potential
misconduct to the audit or another commiee” (1). This implementation allows law practitioners to now
focus on what is best for a firm overall in their opinion. Their sole obligation is no longer to appease to
the CEO or CFO. Aside from legal changes, corporate governance has changed in terms of disclosure
