Financial Statement Fraud: The Saga Continues

Abstract

Financial statement fraud slammed its way into public awareness with hurricane force in 2002. Reacting to a need to shore up public confidence in financial markets, the Congress and President of the United States acted swiftly to pass legislation known as the Sarbanes-Oxley Act, The Act imposed rigid procedures on corporate officers and on the accounting profession for improving the reliability of the financial statements of public corporations. Penalties for noncompliance were increased to what many saw as draconian levels. It will be interesting to observe, in ten, twenty or fifty years, whether the public looks back on 2002 as a watershed year in corporate governance and reliability of financial statements. Will current legislation have the desired effects: One way of predicting the future is to revisit the past. In this article, we will take a bird's eye view of five studies over the past fifty years that have dealt with the issue of corporate crime including financial statement fraud. We will conclude by comparing some findings of those studies with relevant provisions of the Sarbanes-Oxley Act in order to predict the likelihood of the Act's effectiveness in combating financial statement fraud.