Thursday, May 25, 2006 10:03 AM
What a pleasant surprise to find in the news this morning. Kenneth Lay & Jeffrey Skilling were finally found guilty for their part in the Enron scandal. The collapse of the nations seventh largest company in ‘01 cost over $60 billion in market value, $2.1 billion in pension plans, and five thousand six hundred jobs. It’s rather ironic that their sentencing date is September the 11th. These two are doomed. Lay faces a combined maximum of 165 years for his corporate trial and personal banking trial. Skilling is looking at a sobering 185 years in prison. I almost feel bad that these two will most likely spend the rest of their days in a federal prison. On second thought, no, I don’t. Have fun fellas, enjoy.
Enron is just another example of the recent corporate scandals which have plagued our nation, and undermined our integrity as a world power. The public outrage has reached the politicians, and the results are finally begining to show. For those of you unfamilliar with the Sarbanes-Oxley act, some background information from Wiki…
The Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or SarbOx; July 30, 2002) is a United States federal law passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States. These scandals resulted in a loss of public trust in accounting and reporting practices. The legislation is wide ranging and establishes new or enhanced standards for all US public company Boards, Management, and public accounting firms. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.
The Act covers issues such as establishing a public company accounting oversight board, auditor independence, corporate responsibility and enhanced financial disclosure. It was designed to review the dated legislative audit requirements, and is considered one of the most significant changes to United States securities laws since the New Deal in the 1930s.
The Act came in the wake of a series of corporate financial scandals, including those affecting Enron, Tyco International, and WorldCom (now MCI). Named after sponsors Senator Paul Sarbanes (DMd.) and Representative Michael G. Oxley (ROh.), the Act was approved by the House by a vote of 423-3 and by the Senate 97-0.
The Sarbanes-Oxley Act’s major provisions include:
* Certification of financial reports by chief executive officers and chief financial officers
* Ban on personal loans to any Executive Officer and Director
* Accelerated reporting of trades by insiders
* Prohibition on insider trades during pension fund blackout periods
* Public reporting of CEO and CFO compensation and profits
* Additional disclosure
* Auditor independence, including outright bans on certain types of work and pre-certification by the company’s Audit Committee of all other non-audit work
* Criminal and civil penalties for violations of securities law
* Significantly longer jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements.
* Prohibition on audit firms providing extra “value-added” services to their clients including actuarial services, legal and extra services (such as consulting) unrelated to their audit work.
* A requirement that publicly traded companies furnish independent annual audit reports on the existence and condition (i.e., reliability) of internal controls as they relate to financial reporting.
Basically, it was the passing of this act which now holds company executives more accountable for their irresponsible actions. Although the cost of implementation and compliance is higher than expected, I truly feel that this was a necessary step the government had to take. I’m sure it is a major headache to the honest businesses out there, but corporate reform is definately something we as a nation need to address. Financial reports and auditing were just too loosely regulated in the past. I’ll bet Lay and Skilling weren’t betting on this when they were commiting these fraudulent crimes. Sometimes people don’t realize the impact their actions may have on themselves, their families, their employees, and even the nation. I think it’s only fair that the people who hold the strings are more closely watched.
Tags: enron, hawaii, sarbane oxley
