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Since Gosaas works with 90% U.S.-based clients, it’s really important that we understand the
laws that shape their business environment—especially laws about financial reporting, trust,
and transparency.
One of the most important of these laws is the Sarbanes-Oxley Act, also known as SOX.
But before we talk about what SOX is, we need to understand why it was created in the first
place. Back in the early 2000s, the U.S. went through a financial crisis—not caused by the
economy, but by corporate fraud. At that time, there were very few rules on how companies
reported their finances.
There was weak oversight.
Executives weren’t really held responsible.
Auditors—who were supposed to check the numbers—weren’t always independent.
This opened the door for huge accounting scandals that shocked the world.
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“Does anyone remember hearing about Enron?
Imagine you’ve invested all your savings in a company that’s praised everywhere. The news calls
it a rising star. You trust it. But behind the scenes, Enron’s leaders—Kenneth Lay and Jeffrey
Skilling—are hiding billions in debt using fake companies and tricky accounting. When the truth
came out, it was too late. The company collapsed, and thousands of people lost everything—
including their jobs and retirement money.”
Enron was founded in 1985 and worked in the energy business selling electricity, natural gas,
and even trading commodities. It had a reputation for being super innovative, and its stock price
grew fast. People saw it as a model company. But underneath all that success was some serious
dishonesty.
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"So, what exactly did Enron do wrong?
First, it created fake companies—called SPEs—to hide its debt. That means they made it
look like they owed less money than they actually did.
Second, they misled investors to show big profits that didn’t really exist.
And the worst part? Their accounting firm, Arthur Andersen, helped them cover it all
up.
Eventually, the truth came out. In December 2001, Enron went bankrupt. Over 20,000
employees lost their jobs and savings, and Arthur Andersen—once one of the biggest
accounting firms—collapsed too. The top Enron executives, Lay and Skilling, were found guilty
in court."
“Have you ever heard of WorldCom? Now imagine this—you check your investment account
one morning, and everything is gone. WorldCom was a massive telecom company. On the
surface, it looked like it was doing great. But inside, the CEO Bernard Ebbers and CFO Scott
Sullivan were cooking the books. It took a brave employee, Cynthia Cooper, to speak up and
expose one of the biggest accounting frauds in U.S. history
WorldCom started in 1983 as a small phone company called LDDS. In 1995, it became
WorldCom and began buying other companies to grow quickly—like MCI, a major telecom
provider. On the outside, they looked like a fast-growing telecom success. But like Enron, the
inside story was very different."
WorldCom was a telecom company. That means it needed lots of phone lines to connect
calls. But it didn’t own all those lines — so it had to pay other companies to use them.
Think of it like paying rent every month to use someone else’s phone cables. These
payments were called line costs, and they were just normal monthly business expenses
— like a phone bill or rent. But WorldCom didn’t record them as expenses. Instead,
they called them investments — as if they were buying something valuable like
equipment or buildings. So, by doing this, WorldCom hid 3.8 billions in losses and
pretended to be profitable.
There were no strong controls inside the company, and employees were pressured not
to speak up.
When the truth finally came out, WorldCom filed for bankruptcy in July 2002. Investors lost
around $180 billion, and CEO Bernard Ebbers was sent to prison for 25 years.It became one
of the biggest corporate frauds in U.S. history.
So after hearing about Enron and WorldCom, one thing is clear — these weren’t just
business failures, they were trust failures.
People lost their life savings, their jobs, and their faith in the system.
It became obvious that something had to change. There needed to be stronger rules, real
accountability, and better protection for investors.
That’s exactly why the Sarbanes-Oxley Act, or SOX, was created — to rebuild that broken
trust and prevent this kind of fraud from happening again.
Now, to explain what SOX actually is, how it works, and why it matters — I’ll hand it over
to Imtenan.
