The examples of the financial reporting scandals mentioned above had a deep impact of national and international markets. Investor confidence was shattered and the trust placed on the methods of financial reporting was also shaken.
The device used to give guarantees about the accuracy of the reporting, namely the external auditor, was also proving to be problematic and in some instances faced “related party” problems as they also acted as management and financial consultants for the same companies. This prompted newer regulation and some change with regards to the standards of reporting to shore up investor confidence once again. The Sarbanes-Oxley Act in 2002 was one such piece of legislation in the US (Romano 2005). It directly tackled some of the problems encountered in the cases of Enron and WorldCom. More accurate disclosure was encouraged by requiring the senior officers such as CFO to certify that they are responsible for the financial statements.
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