The Changes Of U.S. Securities Supervision System After Enron Fraud

Enron's collapse had a huge impact on the U.S financial industry, and disclosed the malpractices of U.S. Securities Supervision System. The author presents the changes in practice of U.S. Securities Supervision System after Enron's fraud, and discusses how to improve our securities supervision system by referring to their experience. There are totally five sections in this thesis. In the preface, the author explains the purpose of the thesis is to supply practical references for how to improve our securities supervision system through analyzing how the U.S. government changed to avoid reoccurring similar financial scandals after Enron fraud.In the fist chapter, the author discusses the necessity of securities supervision in terms of market failure, public characteristic of information products, imperfect competition in the securities market, external financial risks and immaturity in laws, and concludes that supervision is necessary to reach better effectiveness in the market.In the second chapter, the author displays the structure of securities supervision system of U.S. and indicates the defects in supervision. Firstly, the author introduces the three levels in the structure of U.S. securities supervision system: government supervision, self-discipline and legal relief to the victims. Government supervision means the government administrates the securities market by enacting comprehensive laws on one hand; on the other hand, the government executes comprehensive supervision to security issue, security transaction, security brokers and investment companies through Securities and Exchange Commission (SEC). Self-discipline means the commissions of all industries maintain high-efficient and transparent operation of the market by supervising and directing the members, as well as implementing self-education and self-administration. Relief to the victims means that the victims can sue for the actions against the regulations. Secondly, the author indicates the malpractices in U.S. securities supervision system in terms of information disclosure, the supervision to accounting agencies, investment banks, investment analysts, credit rating firms and stock options. Those malpractices allow the fraud of Enron and WorldCom. The U.S. government realized the necessity of changing the current securities supervision system, while the scandals occurred.The third chapter of the thesis is focused on the changes in securities supervision system after Enron fraud. The U.S Congress enacted Sarbanes-Oxley Act of 2002 (known as Act hereafter) after Enron fraud in order to avoid malpractices of supervision system. Firstly, the author discusses the improvement of information disclosure system after Enron fraud. Act states the information should disclosure more promptly and the yearly report and the quarterly report should be submitted more quickly. Act also states the responsibility of CEO and CFO. The author suggests to change the financial report model to trend disclosure, and to enlarge the scope of corporation financial report in order to make the information more comprehensive. Secondly, the author discusses the changes of the supervision system to the accounting agencies. Act states that Public Company Accounting Oversight Board (known as PCAOB hereafter) should be founded to supervise auditing. Five new issues have been promoted in Act in terms of the supervision to the accounting agencies: 1.end the self-supervision system to the accountants; 2.differentiate auditing and consulting; 3.shift the right of enacting the auditing regulations; 4.allow public company auditing board to directly employ accounting firms; 5.aggravate the punishment to the fraudulent practices in auditing. Thirdly, the author discusses the changes of the supervision to the investment banks and investment analysts. The changes made by SEC are mainly focused on reducing the connections between analysts and investment bankers and maintaining its independence. Meanwhile, SEC also issued The Regulations to Investment Banking Analyst...