Question

Accounting scandals that led to investigations of such well-known companies as AOL Time Warner, Global Crossing, Enron, Qwest Communications, and WorldCom resulted in the conviction of a number of corporate executives and the passage of the Sarbanes-Oxley Act of 2002. In these cases, the board of directors did not fulfill which of the following important obligations?
Instituting a compensation plan for top executives that rewards them for actions that serve stakeholder interests

All of these choices are correct.

Critically appraising the company’s direction, strategy, and business approaches

Creating meeting agendas to deal with regulatory compliance issues

Overseeing the company’s financial accounting and financial reporting practices

Answer 1

Answer: Overseeing the company’s financial accounting and financial reporting practices.

Explanation:

The Board of Directors are meant to act on behalf of the shareholders to protect their interest. An important part of this protection is to monitor the company books for irregularities due to the penchant for managers to deviate from upholding shareholder interests to following their own.

In the cases of AOL Time Warner, Global Crossing, Enron, Qwest Communications, and WorldCom, the Board's Audit Committee failed in dispatching their mandate and because of that failed mandate, allowed the Executives to manipulate financial data in very unethical and very illegal ways to make it seem like the companies were profitable when they were not.