In 2001, energy trading company Enron had well, let's call it a few problems. For that matter, so did Arthur Anderson, the company’s accounting firm...but we’ll get to that.
A handful of Enron executives had spent the previous few years using a variety of accounting tricks to hide massive losses at the firm. As a result, they got rich off of stock options and self-dealing side hustles using the company’s assets.Through it all, Arthur Anderson, acting as the company’s auditor (meaning the firm was fundamentally in charge of making sure Enron’s books were correct) signed off on the dodgy balance sheet. It all came to a head in 2001, when the company imploded in a flurry of massive write downs and indictments of top executives.
Eventually, Arthur Anderson itself was found guilty of various infractions, including shredding documents in an attempted cover up. The conviction was eventually overturned, but the scandal led to the so-called “Anderson Effect”...basically, after that, auditors would be reluctant to be push overs for the companies they worked for and conduct a more stringent review of results.
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Finance: What are Unsuitable Recommendat...0 Views
finance a la shmoop what are unsuitable recommendations I'm putting little old
ladies in extremely risky venture capital investments that likely don't [Old lady cartoon travels along ventural capital timeline]
get liquid for a decade yeah that's unsuitable putting the whole
portfolio of twenty-eight year olds in US government short term paper [28 year old portfolio opens]
unsuitable telling anyone to buy lottery tickets unsuitable the basic idea is
that if you are guiding a client as their investment advisor you have to you
know do right by them so that you match their tolerance for risk and reward
hunger for the reward there yet in investment packages that make sense [Risk and reward on a balance beam]
old people for the most part just want to live their golden years in peace so
that they don't have to lean on their kids for financial support do they care [Children sitting on sofa]
whether they make twenty times their money on an investment in ten years no
at least probably none is by the time the investments pay off they'll likely
be doing backstroke Six Feet Under you know on a gentle sloping hill with a [Man points to gravestone]
view of the babbling brook or be so old and well they won't know the difference
yeah so they want their money safe just to keep up with inflation maybe a little [Elderly man sitting in rocking chair]
bit better than that and they want it to be managed with low risk until you know
the end young people have kind of the opposite concern ie not taking enough [Young girl holding bonds]
risk being too safe and just owning safe US government paper well that has them
losing buying power over time after tax three percent government paper a tax
that ordinary income is something less than two percent and if inflation is now
three percent while they're losing a point a year in buying power and with
20-somethings they have something like fifty years before they really have to
worry about drawing on their savings so they can handle this ups downs sideways
but over long periods of time the market goes up like think about where it [Market price increases]
was 50 years ago relative to today and while they go via one path or another
from here to here and the bottom line is that the recommendations financial
advisers give their clients have to be suitable for the key elements of their
life their stage in life like your age their level of wealth their tolerance [List of considerations appear]
for risk and a whole bunch of other things that make the market a lot more
like this than like and trust us you don't want to crap out
it feels a you know crappy [Young girl playing craps at a casino]
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