The New Era of Regulatory Enforcement: A Comprehensive Guide for Raising the Bar to Manage Risk

Chapter 7

Financial Reporting Fraud

Howard A. ScheckTimothy P. Hedley

In the early 2000s, the financial reporting scandals involving companies such as Enron, WorldCom, and HealthSouth captured the news headlines. In an effort to curb similar abuses, the U.S. Sarbanes-Oxley Act was passed in 2002, which led to a wave of enforcement surrounding financial reporting fraud. Much of the action targeted such wrongdoing as improper revenue and expense recognition, earnings management, stock options backdating, and misstated loan losses. Since then, the wave of enforcement actions has receded. While there had been an uptick in SEC accounting-related enforcement actions in 2014 and 2015, the number of such cases had declined from 31 percent in 2007 ...