accounting scandals and irregularities

The number of accounting scandals unveiled in early 2000, unearthed a side of accounting and auditing that most economists were not accustomed to and did not believe was possible in the department. Accordingly, studies on the issue have identified three main conditions that prompted these scandals including privatization, reduced share prices, and company take over (Agrawal  & Chadha, 2005). This paper highlights three documented accounting scandals involving three companies, Enron, Xerox, and One Tel, occurring between the years 2000 and 2002. This paper explains the conditions that caused each of these scandals and how accounting and the auditing profession role to changed at the time. Additionally, the paper also draws attention to the major changes that occurred after these scandals and how these changes revolutionized accounting as a profession.

Key Words: Accounting Scandals, Enron, Xerox, One Tel, Reduced Share Prices,

Privatization, Take Over, SOX ACT,


Xerox Accounting Scandal

Xerox’s accounting scandal occurred in the year 2000, but the securities and security commissions only figured it out two years later in 2002 (Carson, 2003). The company’s accountants, teamed up with auditors, managed to fool the company stakeholders, as well as, the public. According to reports on the scandal, Xerox’s accountants recorded sales with lease contracts instead of revenues. By doing this, the accountants, managed to steal plenty of company money, which saw the company faced with a lawsuit that forced them to part with over $10 million as a penalty for this scandal (Agrawal  & Chadha, 2005). Economists explain that Xerox’s accounting scandal was caused by the takeover that occurred in 1999, when the company obtained majority of the company’s stakes from the company’s subsidiaries in India and Japan.

One Tel Accounting Scandal

One Tel’s accounting scandal occurred in late 2001, and the company lost over $290 million as a result of this scandal (Carson, 2003). Reports on the scandal indicate that the company’s reducing market share price was the primary cause of the scandal, where accountants had managed to forge company accounts and report incorrect figures in their sales and revenues. At some point in their stock exchange activities, the company sold 5million shares for 2.5 million, illustrating the degree to which the company’s share prices had plummeted (Carson, 2003).

Enron Accounting Scandal

Admittedly, the Enron accounting scandal was and still is the most recognizable scandal in the first years of the 21st century. Not only did the scandal result to company losses estimated to total to about $600 million; it also drove the company into bankruptcy costing the company about $50 billion bankruptcy (Carson, 2003). Though Accountants and managers were solely responsible for the scandal, the company’s auditor was also held responsible for this scandal because the audit reports did not reflect the company’s real accounting problem (Agrawal  & Chadha, 2005). Economists argue that the company’s involvement with shoddy deals, as well as, the wrong reports in their financial record, thus, company losses.


Sarbanes Oxley (SOX) ACT

The numerous accounting scandals in the 2000s prompted a reaction from industries, as well as, the government. One such response is the passing of the Sarbanes Oxley Act of 2002, which was established to provide compliance rules by accountants, auditors, as well as, the corporate environment. The act proposed various stringent policies for the protection of investors through ensuring accurate and reliable corporate disclosure pertinent to the securities laws, and other ways of ensuring maximum disclosure (Romano, 2005). Observably, the primary reform presented by the SOX ACT is the Public Company Accounting Oversight Board, which was instituted to supervise company auditors to ensure that the correct auditing procedures are being practiced (Romano, 2005). This reform, perceptibly revolutionized accounting processes, with those in accounting being encouraged carry out accounting procedures ethically.






Agrawal A. & Chadha, S. (2005). Corporate Governance and Accounting Scandals. Journal of

Law and Economics, 48:(2): 371-406.

Carson, T. L. (2003). Self-Interest and Business Ethics: Some Lessons of the Recent Corporate

Scandals. Journal of Business Ethics, 43(4): 389-394.

Romano, R. (2005). The Sarbanes-Oxley Act and the Making of Quack Corporate Governance.

The Yale Law Journal, 114(7): 1521-1611.

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