Shenanigans book goes through seven "standard" techniques of misrepresentation for earnings and four for cash flow. Does Sarbanes-Oxley help prevent these situations? (i.e., why didn't Sarbanes-Oxley protect us from the financial sector melt-down?)
Also, one can discuss "how did these occur" in terms of rule-based vs. principle-based accounting. Would principles help reduce the incidence of shenanigans? Remember, moving to IFRS is intended to move us closer to principles-based accounting.
The financial Shenanigans is a book that shows seven ways in which the accounting records can poorly be recorded thus resulting to wrong interpretation of the financial reports. The Sarbanes-Oxley is an Act that was developed in 2002 by Senator Paul Sarbanes and Representative Michael Oxley. The main objective of the Act was to ensure that corporate disclosed the correct information on their financial reports so as to protect the investors in the country. The Act was formulated as a result of the scandals that occurred in the Tyco, Enron and WorldCom (Merkel 2008; Sarbanes 2006).
The Sarbanes-Oxley did not prevent the situations stipulated by the financial Shenanigans nor did it prevent the United States from the financial meltdown because of a number of reasons. One of the reasons is that the Act caused a number of corporate to seek other alternative markets globally. Since the companies did not include the internal control as stipulated by the Act, the companies were not obliged to give the correct financial reports. This therefore led to investors making wrong investment decisions that resulted to ...
Seven standard techniques of misrepresentations are examined.