Editing Accounting (section)

==Scandals==
{{Main article|Accounting scandals}}
{{See also|Accounting ethics}}
The year 2001 witnessed a series of financial information frauds involving [[Enron]], auditing firm [[Arthur Andersen]], the telecommunications company [[WorldCom]], [[Qwest]] and [[Jarden|Sunbeam]], among other well-known corporations. These problems highlighted the need to review the effectiveness of [[Standard accounting practice|accounting standards]], auditing regulations and [[corporate governance]] principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.<ref name="mba.ufm.edu.gt">Astrid Ayala and Giancarlo Ibárgüen Snr.: "A Market Proposal for Auditing the Financial Statements of Public Companies" (Journal of Management of Value, [[Universidad Francisco Marroquín]], March 2006) p. 41, [https://web.archive.org/web/20110721084545/http://www.mba.ufm.edu.gt/journalofmanagement/content/ENG_MarketProposal.pdf UFM.edu.gt]</ref>

The [[Enron scandal]] deeply influenced the development of new [[regulations]] to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms.<ref name="mba.ufm.edu.gt"/>

In addition to being the largest [[bankruptcy]] reorganization in American history, the Enron scandal undoubtedly is the biggest audit failure<ref>Bratton, William W. "Enron and the Dark Side of Shareholder Value" ([[Tulane Law Review]], New Orleans, May 2002) p. 61</ref> causing the dissolution of [[Arthur Andersen]], which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for [[Chapter 11]] bankruptcy protection in December 2001.<ref>{{cite news | title = Enron files for bankruptcy | work = BBC News | date = 3 December 2001 | url = http://news.bbc.co.uk/1/hi/business/1688550.stm | access-date = 15 March 2008 | archive-date = 24 March 2022 | archive-url = https://web.archive.org/web/20220324223251/http://news.bbc.co.uk/1/hi/business/1688550.stm | url-status = live }}</ref>

One consequence of these events was the passage of the [[Sarbanes–Oxley Act]] in the [[United States]] in 2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for [[securities fraud]], for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.<ref>Aiyesha Dey, and Thomas Z. Lys: "Trends in Earnings Management and Informativeness of Earnings Announcements in the Pre- and Post-Sarbanes Oxley Periods ([[Kellogg School of Management]], Evanston, Illinois, February, 2005) p. 5</ref>