It’s hard to look at a financial scandal without Enron, the energy trading giant, coming to mind. Several years ago, it seemed to be the biggest and most profitable energy company; but this changed overnight, over a large financial scandal. Enron was such a large company with so different many transactions that its executives had the pressure, opportunity and rationalization to create and misrepresent financial statements. There might have been pressure from executives in different departments to persuade each other into misrepresenting financial information because the manipulation and masking of evidence takes more than one person’s efforts. There’s also plenty of opportunity since most powerful executives have been in control of the company for such a long period that they are also the ones that audit and process the financial information. For example, Andersen, the auditor of Enron, has been the auditor since Enron first started, in 1983. Then, the executives may rationalize and start believing that what they are doing is justifiable because they are the ones bringing in the customers and cash flow, and therefore, they deserve the most out of the company’s profitability. It’s very difficult to detect these financial frauds because there’s so much happening at the same time and different people making different cover-ups. Even with an impartial auditor working from an outside company, it would be very difficult to prevent the nature of human greed.
Enron, Ethics and its effects on Capitalism:
The beginning offers a bit of explanation as to what caused the Enron financial scandal.