A Comparison of Accounting Fraud Before and After Sarbanes-Oxley

(Introduction): Within all trades of business, the potential for the perpetration of accounting fraud within companies is unfortunately not an infrequent occurrence. Accounting fraud is the “intentional misrepresentation or alteration of accounting records regarding sales, revenues, expenses, and other factors for a profit motive such as inflating company stock values, obtaining more favorable financing, or avoiding debt obligations” (Business Dictionary). The reasons for the frequent phenomenon of accounting fraud are countless. To name a few: greed, lack of transparency, poor management information, and poor accounting internal controls signify some of the various explanations for accounting fraud (Frost 1). Whether or not the initial motive to commit fraud is because a company and/or individual decides to falsely account for the company’s revenues or expenses, or simply because the clarity of aspects of the company’s structure are unclear, accounting fraud often leads to damaging consequences to the company and those within the company. There have been numerous accounting fraud scandals occurring in recent decades within major corporations. When a company’s fraudulent financial reporting is investigated and discovered, the consequences are ultimately detrimental to the company. Many companies that were once successful and worth millions, even billions of dollars end up declaring bankruptcy, and the executives of these corporations sentenced to time in prison. Some companies are able to recover from the actions of fraudsters, by means of investigation, restatements of falsely reported financial statements, and/or accurate financial reporting. However, if the company is “too far gone,” then bankruptcy could be the only outcome. An example of a profitable company that was able to remain in business following a large accounting fraud scandal is Waste Management, Inc