Economics of Sarbanes-Oxley

Two Books

So to begin any business blog, we must talk about Enron. Enron executives were clever. Essentially they kept two books a real book and a fake book. Every quarter they published the fake book, until someone at headquarters got mixed up and posted the real book.

Enron went from AAA rating to junk rating or CCC or lower overnight. To make matters worse, they invested all or their employee pensions in Enron stock. This action destroyed thousands of lives. In fact CEO Ken Lay had a heart attack before he had to report to federal prison.

Today all companies are required under the Sarbanes-Oxley Act to have an independent accounting firm to audit their books. The act protects investors, the Government, and employees. Enron sure “cooked the books” in the early 2000s.