Required: Recent accounting scandals at prominent companies such as Enron, HealthSouth, Tyco, and WorldCom appear to have shaken the confidence of investors. In the wake of these scandals, many of these companies saw their equity values plummet dramatically and experienced a decline in the credit ratings of their debt issues, often to junk status. Many of these firms were forced to file for Chapter 11 bankruptcy protection from creditors. Revelations about the unreliability of reported earnings continue to mount, as evidenced by an alarming increase in the frequency of earnings restatements by firms in the last few years. The widespread failure in financial reporting has largely been blamed on weak internal controls. Worries about accounting problems are widely cited as a reason for the stock market slump that followed these scandals. (Agrawal and Chadha, 2005). show detailed evidence of research.
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