Can Audit Committees Prevent Management Fraud?
By Steven A. Harrast and Lori Mason-Olsen JANUARY 2007 – The world of accounting changed on July 30, 2002, when the Sarbanes-Oxley Act (SOX) was signed into law. The changes set in motion by that legislation continue to cascade through all aspects of the accounting profession. SOX became law as the Enron debacle was unfolding and only nine days after the WorldCom bankruptcy, the largest bankruptcy in history. While the colossal corporate failures surrounding the passage of SOX may have ensured passage of the legislation, the scandals that motivated SOX had been recognized by members of Congress and the SEC for some time. On September 28, 1998, Arthur Levitt, chairman of the SEC, made a speech at the New York University Center for Law and Business condemning the “creative accounting practices” used by U.S. companies. Earnings restatements continue to rise, and many questions remain about the ability of public companies to control management fraud in the financial reporting process. Sinc
