TABLE OF CONTENTS A host of financial disasters, most notably the Enron debacle, led to an uproar in the capital marketplace, as well as impacting the thousands of people working for the affected organizations. The investing public responded with one of the most volatile stock markets in history. A few corporations had tested the level of grayness in their application of generally accepted accounting principles to a point many would say was downright "cooking of books."
Most surprising was that the cast of characters extended beyond a few bad CEOs posting inappropriate journal entries. Rather, the frauds crept from senior executives to the accountants, lawyers, rating agencies, employees, and banks, as well as the "tone at the top" of corporate governance itself: the boards of directors. Even the auditors had something to hide, which was the eventual downfall of one of the leading accounting firms in the world, Arthur Andersen.
Companies at large need to rebuild trust between the shareholders and the organization. This can be done through transparent reporting and solid corporate governance as explained in this chapter. Trust is then synthesized into written form through a new attestation report provided by the company's external auditor on the organization's control design and effectiveness. This report is one component (Section 404) of the Sarbanes-Oxley Act.
The world's capital markets depend on trust between:
Shareholders or financial institutions and...
