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Acknowledgement

We would like to thank Sir Fakhir Musharraf for their guidance throughout the course and the teaching contributions to this report.

Gratitude’s is the hardest of emotion to express and often does not find adequate words to convey. Therefore a report is not an effort of a single person but it is a contribution effort of many hands and brains So, I would like to thanks all those who have helped me directly during the report.

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TABLE OF CONTENTS

INTRODUCTION

Madoff was involved in creating NASDAQ, a stock exchange for technology assets, and was for a time also it's boss. Madoff was part of the establishment and in the 1960s and 1970s he (probably) was not involved in illegal business, but that would change.

The company Avellino & Bienes was closed in 1992 for running a pyramid-scheme by the Securities and Exchange Commission (SEC) and the investigation revealed that this company entrusted Madoff with the money. But instead of liquidating the company as would have been usual, the investors were allowed to exchange their assets at Avellino & Bienes into assets from Madoff - from one pyramid scheme to another. Although Madoff was obviously involved with Avellino & Bienes, there was no further investigation of Madoff. In 1999, Harry Markopolos was instructed by his employer, who like Madoff was trading with options, to find out how Madoff could achieve such high returns. Within a few hours, Markopolos has concluded that Madoff was a fraud.

Markopolos tried tirelessly to inform the SEC and the public about Madoff's fraud, but without success. After countless e-mails, phone calls and meetings with the SEC, which were all unfruitful, he published in 2005 the article The World's Largest Hedge Fund is a Fraud in the Wall Street Journal, the best-known, biggest and most-read financial newspaper in the world. ( Does the SEC read the Wall Street Journal? ) But also many clues from other sorces that were given to the SEC and even internal SEC-documents all show that the SEC and many on Wall Street knew about Madoff's frauds or at least suspected them.

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Finally the SEC started an investigation in 2006. Although Madoff lied during the investigation (which could have been punished with up to 5 years in prison, but the SEC preferred to ignore it), he was only forced to register as an investment advisor (which probably generates fees for the SEC - so it does not go home empty-handed). In 2007, the SEC finally concluded that there are no signs of fraud.

BENEFITS OF SARBANES-OXLEY COMPLIANCE

The Sarbanes-Oxley Act (SOX) of 2002 was enacted following a series of failures involving various functions designed to protect the interests of the investing public. Containing several highly controversial provisions, SOX created a total revision of the regulatory framework for the public accounting and auditing profession and provided guidance for strengthened corporate governance. It was considered to be the most far-reaching legislation affecting public corporations and their independent auditors since the 1930s.

 SOX is widely credited for strengthening at least two major areas of investor protection: (1) CEO and CFO responsibility and accountability for all financial disclosures and related controls; and (2) increased professionalism and engagement on the part of corporate audit committees. Yet some continue to question its overall value, citing, as an example, its failure to prevent the situations that led to the financial crisis of 2008.

FINANCIAL TRANSPARENCY IN SARBANES-OXLEY COMPLIANCE  Financial transparency was composed of eight related concepts.

Sarbanes-Oxley with these eight concepts, it is apparent that there are many possible improvements in financial transparency as a result of the Act.

1. Accurate. The information does, in fact, follow the standards agreed upon.

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2. Consistent. Standards are applied consistently between periods and between different companies to provide comparability.

3. Appropriate. Standards used accurately reflect the underlying economic reality of the organization and its industry.

4. Complete. All information needed by the user to make sound decisions should be made available. This includes key performance indicators and other information, beyond that presented in the financial statements, that are needed to accurately assess the company's performance and position.

5. Clear and understandable. Information is presented in a manner that is clear and understandable to the user.

6. Timing. Information should be presented both within a reasonable time after it is known to management and on a sufficiently frequent basis.

7. Available. All significant information must be easily accessible to all users equally.

8. Governance and enforcement. Adequate policies should be in place to assure that the agreed upon level of transparency occurs.

Sarbanes-Oxley addresses a number of these facets of both financial and market transparency. This paper will be limited to addressing financial transparency aspects of the law.

In general, each major area of Sarbanes-Oxley can improve financial transparency of public company information in several ways:

Accounting standards and oversight improvements should enhance the accuracy, consistency, appropriateness, completeness, clarity, and governance and enforcement of financial information.

Changes in reporting timing standards should improve financial information timeliness and availability, particularly as interpreted in the SEC rule.

Responsibility standard changes clarify the responsibilities of the audit committee, the CEO, CFO, and others. These are one step in

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improving governance and enforceability, as the old approach of holding the company responsible was too vague to be enforceable or to provide any deterrence.

The significant clarification and improvement of conflict and independence standards should improve the accuracy, consistency, appropriateness, and completeness of financial information. In addition, they add to clarifying governance, responsibility, and enforcement.

Strengthening of document standards should help in enforcement.

Provisions under inspection, discipline, and enforcement provide additional enforcement methods and improve deterrence.

Reporting Standards Financial Accounting Standards Board (FASB):The Financial

Accounting Standards Board establishes standards for financial accounting and reporting. Those standards dictate how financial reports must be prepared.

Generally Accepted Accounting Principles (GAAP):GAAP is the accepted method for accountancy (the practice of accounting). It works with the authority of the FASB and establishes a common set of procedures for compiling financial statements.

The details of the Sarbanes-Oxley Act address many of the tactics companies have used to "cook the books" over the years. In the next few sections, we'll go over some of the more popular methods of improving a company's bottom line -- if only on paper. 

CONCLUSION

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