Enron Scandal Assignment

1. Impact on the Sarbanes Oxley act for Enron scandal
& importance of SAP or ERP System
[A K M Sultan Mahmud Faisal]
Enron scandal:
The Enron Scandal occurred in October 2001 when it was manifested that America's seventh
largest company was occupied in corporate corruption and accounting fraud. The scandal
enclosing the Enron energy company made-up political implications due to Enron's close links
with the White House, the mismanagement of ENRON allowing the corporation to lead largely
free from US government tenderness, misrepresentation in earnings reports, a fraudulent 'energy
crisis' and misappropriation undertaken by ENRON Executives. The Enron scandal eventually
guided to the bankruptcy of the corporation together with and the dissolution of the auditing
company Arthur Andersen. The then Arthur Andersen was the one of the largest audit firm in the
world. ENRON shareholders lost $74 billion for bankruptcy, and its employees lost their jobs and
billions in pension benefits. George W Bush who was the 43rd American President serving in
office from January 20, 2001 to January 20, 2009. It may considered as the event occurred in his
serving time so he may inlaid in the scandal. Enron CEO Jeff Skilling was passed judgement on
to 24 years, former CEO Kenneth Lay died before waiting on timed.
Sarbanes-Oxley Act of 2002– (SOX):
The SOX Act of 2002, also known as the Corporate Responsibility Act of 2002, passed the
U.S. Congress on July 30, 2002 to protect investors from the possibility of fraudulent accounting
activities by corporations.
What is in the Act?
The rules and effort policies outlined by the SOX Act of 2002 reclaimed subsistence legislation
conduct with security regulations. The Act reforms in the following four areas:
1. Corporate Responsibility
2. Increased Criminal Punishment
3. Accounting Regulation
4. New Protections
Section302 and 404 of the SOX Act of 2002:
There are two key provisions of the SOX Act of 2002, Section 302 and Section 404.
Section 302 of the SOX Act of 2002 is a mandate that requires senior management to certify the
accuracy of the reported financial statement.

2. Section 404 of the SOX Act of 2002 is a requirement that management and auditors establish
internal controls and reporting methods on the adequacy of those controls. Section 404 has very
costly implications for publicly traded companies as it is expensive to establish and maintain the
required internal controls.
Section802 of SOX:
Section 802 of the SOX Act of 2002 contains the three rules that affect record keeping. The first
deals with destruction and falsification of records. The second strictly defines the retention period
for storing records. The third rule outlines the specific business records that companies need to
store, which includes electronic communications.
Besides the financial side of a business, such as the audits, accuracy and controls, the SOX Act of
2002 also outlines requirements for information technology departments regarding electronic
records. The Act does not set forth a set of business practices in this regard but instead defines
which company records need to be stored on file and for how long. The standards outlined in the
SOX Act of 2002 do not specify how a business should store its records, only that it's the IT
department's responsibility to store them.
Why Congress Passed Sarbanes-Oxley?
(KIMBERLY AMADEO.2018)- Before 2002 the Securities Act of 1933 regulated securities. It
required companies to publish a prospectus about any publicly-traded stocks it issued. The
corporation and its investment bank were legally responsible for telling the truth.
That included audited financial statements.
Although the corporations were legally responsible, the CEOs were not. So, it was difficult to
prosecute them. SOX addressed the corporate scandals at Enron, WorldCom, and Arthur
Anderson. It prohibited auditors from doing consulting work for their auditing clients. That
prevented the conflict of interest which led to the Enron fraud. Congress responded to the Enron
media fallout, a lagging stock market, and looming reelections.
SAP or ERP System:
The world’s largest enterprise applications software company SAP - as measured by software and
service-related revenue - with 172,000 customers around the world. The SAP’s customer base
consists of very large enterprise accounts.
SAP looks after of enterprise resource planning (ERP) applications including customer
relationship management (CRM), financial management, human capital management, product
lifecycle management, and supply chain management.
ERP products, SAP offers several business analytics applications as part of its Business Objects
product line. Business Objects is one of SAP’s more knowledgeable acquisitions which was
announced back in 2007. This acquisition pushed SAP into the business intelligence leaders circle
with IBM, Oracle and Microsoft.

3. How it works for a company’s security?
The three-tier SAP
1. The presentation tier provides the interface to the user;
2. The application tier processes the business logic; and
3. The database tier stores the business data.
The Presentation Tier
This tier is situated on PCs of business users and also provides the SAP Graphical Interface. SAP
is a lightweight application that can be installed on any computer running MS Windows or Mac
OS and it shift the interface for communication between the user and the SAP or ERP system.
The Application Tier
This tier is basically the main system of the SAP ERP system. It occurs the business logic,
responsible for processing client transactions, print jobs, running reports, coordinating access to
the database, and interfacing with other applications. It is possible to allot the application logic
between several server machines in situations when the load overcome processing power of a
single server.
The Database Tier
This is used for storing two types of objects: the business-generated data and the SAP application
programs. The business-generated data represents data objects created by users as part of various
business processes. SAP application programs are routines written in ABAP (special programming
language used in SAP) that are founded into the SAP application servers from the database at
runtime. It is possible to use databases from different vendors and it is up to the company to decide
which database vendor to choose. Usually, the database license is included into the price of SAP.
The tier has the highest requirements for availability, reliability, and performance. Usually each
SAP system is extended on one database instance. The performance of the database tier ultimately
determines the scalability of the entire SAP ERP installation.
There are situations when three tiers can be reduced to two or one. The possibility of these
situations depends on available processing power and number of business users.

4. Reference
1. KIMBERLY AMADEO. August 15, 2018. Sarbanes-Oxley Summary Four Ways
Sarbanes-Oxley Stops Corporate Fraud. Source [online]. Available:
[https:// www.thebalance.com/sarbanes-oxley-act-of-2002-
3306254?_ga=2.202195026.2124416119.1541597516-865218218.1541597516]. [7th
September, 2018. 7:50 PM].
2. KIMBERLY AMADEO. August 15, 2018. Sarbanes-Oxley Summary Four Ways
Sarbanes-Oxley Stops Corporate Fraud. Source. 1(6).
3. SAP ERP Software. [Online]. Available: [https://www.softwareadvice.com/erp/sap-
software-brand]. [7th September, 2018. 10:40 PM].
4. Antonia Lang. Nov 24, 2017. How does the SAP work? .Available:
[https://www.quora.com/How-does-the-SAP-work]. [7th September, 2018. 11:00 PM].