Panti, Mary Luz Faye B.

MGA 201
Discuss and provide an analysis of similarities and differences of the five (5) financial scandals and
how SOX and Internal Controls plays an important factor for fraud detection in an entity.
Enron, Arthur Andersen, Lehman Brothers, Tyco and Worldcom are five of the biggest scammers in
American history. The CEOs and CFOs of all these companies have engaged in harmful behavior with the
aim of improving their own and their company's financial position. Despite their peculiarities, they were
all unethical. These people broke so many moral codes that they were charged with felony and all were
imprisoned. Enron`s sales considerably reduced due to developing opposition within the electricity
buying and selling industry. Company officers started counting on irrelevant accounting methods, such as
"mark-to-market accounting," to hide the problems due to stress from shareholders. The agency became
capable of create the advent of better modern-day profits through writing predicted capacity earnings
from positive buying and selling contracts into real profits statements the usage of mark-to-marketplace
accounting. Additionally, the business enterprise's difficult sports moved to such unique reason entities
(SPEs), which can be correctly constrained partnerships set up from out of doors stakeholders. The initial
accusations targeted on Arthur Andersen's involvement. The commercial enterprise have been Enron's
auditor for sixteen years and became among the "Big Five" accounting corporations within the US.
Incorrectly classifying massive sums of cash as boom in shareholder ownership, Enron and Arthur
Andersen misrepresented the underlying cost of the business enterprise hence consistent with courtroom
docket records. Furthermore, while studying Enron's interactions with affiliated partnerships, Arthur
Andersen did now no longer adhere to widely wide-spread accounting procedures (GAAP). Enron
became capable of cover tons of its losses because of those sports.

The Lehman Brothers accounting dispute serves as an example of the damage that can be caused by
minor adjustments in accounting standards. Repo 105 accounting error was introduced in 2001 by
Statement of Financial Accounting Standards (SFAS) No. 140. The error allowed Lehman Brothers to
hide the extent of its investments' indebtedness. Lehman Brothers filed for bankruptcy on his Sept. 15,
2008, and the company's stock price climbed his 93.0 points in the three days that followed. Former
Lehman Brothers CEO Richard Faldo has admitted the bank's mistakes, but expressed frustration with the
government's decision not to bail out the bank, unlike AIG and other collapsed financial giants. Tyco's
crisis came to light in 2002 when its board of directors launched an investigation into members'
inappropriate conduct. Kozlowski and a small group of his "friends" were expelled and put on trial. Tyco
Inc. CFO Kozlowski and Swartz accused him of stealing his $170 million from the company and
improperly selling his options on stock worth $430 million have been accused. Kozlowski and some
members of his Tyco board have been fined for disputes and accused of defrauding company funds for
personal use. America's second-largest long-distance carrier admitted to overestimating its profitability
until June 2002. This is primarily due to the classification of fees we charge for using other companies'
communication systems as fixed assets. WorldCom routinely "cooked the book." The SEC concluded
that his CEO Ebbers management at WorldCom played a key role in the case. Company politics revolved
around him, and he put a great deal of pressure on others as long as the fraud continued.This fraud was
fueled by the lack of safeguards in the financial system during this period. The SEC said, "It is deemed
appropriate for the General Accounting Department to enter transactions in the hundreds of millions of
dollars with minimal or no corroborating evidence other than a verbal or email prescription from a senior
executive. It revealed that fraudulent accounting transactions are easy because of the Run. The main
difference between these five companies is that Tyco International's ability to recover and maintain its
current strong financial position sets it apart from scams like the other four. Unlike Enron, Andersen,
Lehman, and Worldcom, which were rife with ethical misconduct, Tyco's record of misconduct focused
on theft and minority theft. Unlike Tyco, whose financial statements were made public, the other four
companies falsified their financial statements. And the common denominator between these companies
is that the audit firms did not detect fraud in their audits. After the scam was leaked, all the accounting
firms looked ridiculous.

A well-executed audit will identify and scrutinize executive liability and inappropriate incentives, not to
mention expense report abuse. On the one hand, it can be argued that few board members knew about the
activity, but chose to ignore it. Without identification, the scammer would have remained undetected for a
year or two. The department's red flags would have been flagged by a strict internal audit department that
operates separately from the rest of the accounting department and focuses on CEO compensation.
Inappropriate expenses would have been particularly visible due to this audit process. According to an
opinion article written in 2012 by Michael Peregrine, Sarbanes-Oxley has now no longer resulted in
failure within the slightest; instead, it has stepped forward large company distinction company obligation
and fiduciary duties to the enterprise and stockholders. Corporate governance and executives` necessities
have elevated because the act's enactment for executives and officials of corporations. The public and
stockholders have become greater aware about company obligation as a result, which elevated interest to
enterprise operations and controls. Even though accounting malpractice mentioned uncertain on this view,
it's far exercise obvious that SOX has superior in regions of company duty and manipulate and has
reinforced from its preceding status. In spite of what preceded fraud can't eliminate, establishing,
implementing, and tracking a stringent moral code of conduct, powerful inner controls, and thorough
inner and outside audits will allow an extended future.

References:
Ackman, D. (2004, March 14). Tyco Trial: Fraud and Farce. Retrieved from Forbes.com:
http://dackman.homestead.com/DLATrials.pdf

Britannica Encyclopedia, T. E. of (Ed.). (2002, May 10). Enron scandal. Encyclopedia Britannica. Retrieved
September 14, 2022, from https://www.britannica.com/event/Enron-scandal

HG.org. (n.d.). The Fallout of Arthur Andersen and Enron on the Legal Landscape of American Accounting.
Hg.org. Retrieved September 14, 2022, from https://www.hg.org/legal-articles/the-fallout-of-arthur-andersen-and-
enron-on-the-legal-landscape-of-american-accounting-31277

Internationalbanker, I. B. (2021, September 29). The WorldCom Scandal (2002). International Banker. Retrieved
September 14, 2022, from https://internationalbanker.com/history-of-financial-crises/the-worldcom-scandal-2002/

Peregrine, Michael W. "Sarbanes-Oxley Changed Corporate America." The New York Times.
N.p., 25 July 2012. Web. 12 Apr. 2016.