Professional Documents
Culture Documents
fraud, making false statements to banks and auditors, money laundering and insider trading
(Haverkamp, 2009,p.11).
The WorldCom scandal was more or less the same as Enron. WorldCom management
managed to carry out a cover-up of their declining financial status by means of fraudulent
accounting methods. Again, the board of directors were oblivious to the happenings in the
company (Haverkamp, 2009,p.11) Enron and WorldCom scandals show that companys board
of directors can be manipulated by management executives either by manipulating facts or by
holding back crucial information. At Enron and WorldCom, though the crimes were
committed by the management executives, the boards of directors have failed in their duty of
ensuring competent supervision (Haverkamp, 2009,p.12).
In the wake of Enron and WorldCom scandals, the US Congress passed the SarbanesOxley Act 2002. The gist of the new legislation is to make directors more duty bound to
monitor management. Among other improvement, the Act requires that companies have an
audit committee consisting solely of independent directors. Every member of the audit
committee has to be on the companys board of directors with the task of monitoring auditing
practice and financial management of the firm (Haverkamp, 2009,p.13).