It was obvious to many that the collapse of Enron and Worldcom had led to the enactment of
Sarbanes Oxley Act of 2002 (SOX 2002). The downfall of these companies was brought about by
massive accounting frauds. Shortly after the SOX 2002 enactment, accounting scandals were also
uncovered at another giant organisation, HealthSouth Corporation.
Relevant research materials on the aforementioned three cases (Enron, Worldcom and HealthSouth)
as well as the specific provisions of SOX 2002 to answer the following questions. The full provision of
SOX 2002 is accessible via https://www.sec.gov/about/laws/soa2002.pdf. (a) For each of the three cases, evaluate just one (1) major accounting fraud which you think had led
to the downfall of the organisation. In your evaluation, you will describe the nature of the accounting
fraud, the actual or assessed impact of the fraud on the financial statements of the organisation and
how it could have been prevented or detected should there be proper internal controls in each of
these organisations at that time.
(b) Critique which key provisions of SOX 2002, had they been in place at that time, could have
prevented or detected the three major accounting frauds you have identified in 1(a) above.
(c) Using the same three accounting frauds from 1(a), examine why the auditors at that time did not
uncover the major accounting frauds timely enough and assess whether the auditors would have
uncovered the fraud had they been more vigilant in the performance of their audit.