Corporation Fraud

Corporation Fraud

Tiffany N Williams

ACC/561

May 21, 2014

Alberta Wasden

Corporation Fraud

Corporate corruption and shady accounting practices led to the meltdown of several large corporations in the early 2000’s, and the government had to act to ensure that all faith was not lost in the United States corporate world. Investors became wary of the stock market, and the U.S. government had to do something to restore the people’s faith. The government needed to ensure investors that companies were transparent in their dealings, and that there was a system of checks and balances in place to make sure that accounting principles were being followed. As a result, Congress enacted The Sarbanes-Oxley Act in 2002 (SOX). The Act did various things to decrease corporate corruption. First, it insisted on the establishment of a board to oversee accounting firms. Secondly, it protected those employees who reported fraudulent activities to the government. It also made chief executive officers and chief financial officers more accountable for the financial practices within their companies (Castellon, 2011). With all of these things taken into consideration, SOX has shown much effectiveness in the way the corporate world handles its finances, and will be effective in curtailing future fraudulent activity.

The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board (PCAOB) to monitor the actions of accounting firms. This board “is responsible for overseeing, investigating, and disciplining auditors” (Shadab, 2009, para. 3). The board ensures that all accounting firms are following the law, and it explores any allegations of wrongdoing on the part of the accountants. The board also penalizes any firms who are found guilty of not following the law, and many times, the initial allegations come from within the firm.

Many times employees may feel compelled to report wrongdoing within a corporation, but they do not for fear of retaliation. Whistleblowers, or people within companies who report financial wrongdoing to the proper authorities, are also protected under the Sarbanes-Oxley Act. This provision under the Act protects employees from “discharge, demotion, suspension, harassment, threats, or other forms of discrimination in the terms and conditions of employment for certain whistleblower activities” (DeGraffenreidt & Bonczyk, 2005, para. 5). If employees do report illegal activity, and are threatened, harassed, or terminated from their jobs, they may be able to sue their

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