 Fraud is the intentional misrepresentation of facts, which result in harm or detriment to others. Accounting fraud is a billion-dollar problem. Some of the largest accounting frauds over the past 15 years include waste management and help-south reporting fake revenues in excess of 1.5 billion. Overstating revenues isn't the only way to commit accounting fraud. Enron hid billions of dollars of liabilities off its balance sheet, thereby understating debts and related expenses. Its bankruptcy cost shareholders over $74 billion. Lehman Brother combined the two ideas and recorded liabilities as revenues to the tune of nearly $50 billion. Think about that journal entry. Instead of crediting a liability, they credited a revenue. Some of you may have accidentally done that on one of the assignments. Now think about that error in this context. Overstating assets is another way to commit accounting fraud. WorldCom recorded about $11 billion in expenses as assets. Think about that journal entry. Instead of debiting an expense, they just debited an asset. There are two broad categories of accounting fraud. The first rarely makes national news because the amount could be quite small, although not always. We call this misappropriation of assets. And it's basically stealing. You can see some of the common examples on the slide. The second category is fraudulent financial reporting. The companies earlier were examples of this. Regardless of the type of fraud, most have three elements in place, which we call the fraud triangle. Opportunity. Does a person or group of people have access to commit fraud? Pressure. Are there pressures, either personal financial pressures or market pressures, that cause people to act desperately? And rationalization. Does a person or group rationalize that what they're doing is okay? Where these three items are present, fraud is more likely to be committed. The Sarbanes-Oxley Act of 2002, which is more commonly called SOCs. It is a bill, and it contains 11 sections, and it was enacted in a reaction to a number of the corporate accounting scandals, including Enron and WorldCom. It applies to publicly traded U.S. companies. It requires them to maintain a system of internal controls. Corporate executives and board of directors must ensure that these controls are reliable and effective. Independent outside auditors must attest to the adequacy of the internal control systems. And Sarbanes-Oxley created the Public Company Accounting Oversight Board, which we'll talk about in a second. Finally, it created stiff penalties for violators, including what could be 20 to 25 years in prison. The Public Company Accounting Oversight Board is a private sector nonprofit corporation that oversees the audits of public companies and other issuers in order to protect the interests of investors and further public interest in the preparation of informative, accurate, and independent audit reports. And that concludes this brief overview of fraud and the Sarbanes-Oxley Act.