Revisiting Enron: The response

By Ben Dell’Orto, IAC Student Intern Fall 2018

Sometimes you’ve got to learn the lesson the hard way.

While legislation to prevent the “creative accounting” performed by Enron may seem like a no brainer, it took those events to prompt legislative action, which followed quickly.

First introduced to the House of Representatives by Rep. Michael Oxley, the bill went through only a few amendments before moving to the Senate on April 24, 2002. There, Sen. Paul Sarbanes pushed the bill through, agreed to on July 15. The differences were resolved by July 25.

President George W. Bush signed the Sarbanes-Oxley Act of 2002 on July 30 of that year. The act is extensive, covering not only issues raised by Enron but by other scandals such as WorldCom, Tyco, and Adelphia. Some claim the act is the “the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt.”

The act creates the Public Company Accountant Oversight Board, which performs several functions. It also sets out requirements for “auditor independence,” and seeks to avoid improper influence on auditors, which are critical, as Enron was able to avoid detection partly based on its auditor also being its accountant.

Auditors are also now required to report on the company’s internal management of financial reporting. It is the hope that this improved oversight will encourage better responsibility from companies.

Ultimately, the executives at Enron were committing crimes when they fooled investors, and while these new rules should place a more-discerning eye on companies, one has to wonder when another fake success story will rear its head.

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