Reference no: EM132943255

In 2000, the high flying company Enron completely collapsed taking venerable accounting and audit firm Arthur Anderson along with it. There were some warning signs, but right up to the end, an examination of the company's financial statements showed a healthy company with no reason to be concerned. Of course, the numbers were fiction, as were many of the operations of the company itself. This meltdown ultimately led to passage of the Sarbanes- Oxley Act of 2002, which requires the CEO, CFO, CIO and all of their supporting managers to certify that the financial information being reported is correct and accurate. Penalties for failure to comply are severe.

Problem 1: Plato wrote of the analogy of the Cave - prisoner's only experience of reality is what they see reflected in the shadows on the blank wall in front of them. Think about the financial statements (balance sheets, income statements etc.). How are they real and how are they simply reflected shadows? And if they are simply reflected shadows, what do we need to do as managers to ensure that they are an accurate reflection of the business, and not just a shadow?