Revisions of Off-Balance Sheet Financing

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Recommended: Behind the Enron Scandal

During the 1990s, the United States had one of the most successful economic periods in history. The GDP of the country increased substantially and unemployment was at a historically low level. With the success of the U.S. economy during this period spilling over into the next decade, revelations of corporate scandal and corporate governance oversight came to light.

The Enron scandal of 2001 and the Wall Street Meltdown of 2008 are two noteworthy events of inadequate accounting policies that led to economic catastrophe during the past decade. The Enron Corporation‘s flawed accounting practices were perpetuated through the utilization of fraudulent special interest entities that were used to hide losses and rising debt sustained by the company during previous fiscal periods. The Wall Street Meltdown can be highly attributed to the use of mortgage backed securities and other creative investment vehicles that were distributed throughout the world as safe investments with rewarding returns. Both of these events were a product of the improper use and abuse of off-balance sheet accounting methods.

The government’s reactions included the creation and revision of new and existing laws and governing bodies. As a direct result of the current corporate scandals, The Sarbanes-Oxley Act of 2002 (SOX) was created. At the time, SOX was the first and most influential financial system overhaul in response to the current wave of corporate corruption. A provision of SOX established the Public Company Accounting Oversight Board (PCAOB). The intent of SOX and its provisions were “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes” (Sarbanes-Oxley Ac...

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....R. Res. 3763, Sarbanes-Oxley Act of 2002. 107th Cong., 107-204 Public Law 116 STAT. 745 (2002) (enacted).

Kermis, George F. and Marguerite D. Kermis. “Model for the Transition from Ethical Deficit to a Transparent Corporate Culture: A Response to the Financial Meltdown.” Journal of Academic and Business Ethics, Fall, 2009.

Weissman, Robert, and James Donahue. "Wall Street's Best Investment: 10 Deregulatory Steps to Financial Meltdown." Multinational Monitor January/February (2009): 10-31.

Jeffrey, Peter. "International Harmonization of Accounting Standards, and the Question of Off-Balance Sheet Treatment." Duke Journal of Comparative & International Law 12.341 (2002): 341-51.

Feng, Mei, Gramlich, Jeffrey D. and Gupta, Sanjay, “Special Purpose Entities: Empirical Evidence on Determinants and Earnings Management.” The Accounting Review (January 9, 2006). 1-55.

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