If you have been following the news recently, you have probably heard about the collapse of Refco, the commodities trading firm that filed for bankruptcy after being accused of allegedly hiding a $430 million bad debt from its shareholders.
Refco's CEO has been arrested, and while his innocence or guilt remains to be determined, Refco provides us with an excellent opportunity to understand the serious interdependencies between IT and Sarbanes Oxley compliance.
Some background: Refco went public in August, 2005, and was warmly received by the market despite the fact that its auditors noted deficiencies in its internal controls and financial staff. Per the Sarbanes Oxley Act, these deficiencies would need to be rectified as Refco complied with disclosure rules set by the SEC. However, before that cycle could even commence, an internal auditor discovered the notorious alleged $430 bad debt.
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