It has been alleged that several recent corporate failures have been largely due to the lack of adequate controls in the organization. For example, it has been alleged that many of the savings and loan companies that failed did so, in part, because of a poor control structure.

Required:

a. Identify a major company that has recently failed or has been involved in a fraud—or choose a company such as MiniScribe, Lincoln Federal Savings & Loan, Great American Financial, Cendant, MicroStrategy, or ESM—and review the financial press accounts of the failure or fraud. Identify any elements of control structure problems that may have contributed to the decline and subsequent failure of the organization.

b. The SEC has been considering making it mandatory for registered companies to report on the quality of their internal control and have auditors attest to that reporting.

What are the advantages and potential problems associated with the SEC’s proposal?