Financial scandals: a historical overview

Abstract

I examine the incidence of fraud from c.1720 to 2009 and relate it to the occurrence of significant financial scandals. Focusing on the UK, and US prior to Enron, and using a detailed dataset of significant events and news content, underpinned by examination of specific watershed scandals, the paper highlights the regulatory response to scandals and the implications for accounting and financial reporting. The evidence reveals the incidence of fraud and financial scandal to be historically contingent and skewed towards certain sectors, particularly banking and finance, facilitated by complex group structures and international capital mobility, and mediated by managerial incentives and ownership concentration. Financial reporting and auditing can mitigate fraud opportunities in all sectors and businesses without complex group structures, and the accounting profession achieved some success in this respect up to the mid-1970s. Since then, the profession has been increasingly challenged by, and to some degree implicated in, the development of interconnected and international business networks, which, combined with wider financial deregulation, has led to a resurgence of fraud and financial scandal not previously experienced since the midnineteenth century.

Impact of Internal Control in Enterprises Founded by Local Self-Government Units: The Case of Republic of Serbia

“…Modern corporate governance predominantly relies on financial reporting, as pointed out in a great number of papers (Tett, 2019;Toms, 2019). Besides, an improvement of financial reporting requires a certain level of audit (Coffee, 2019;Izza, 2019), which is accepted by the authors of the paper as a research assumption, against directing our research toward answers to questions on establishing control mechanisms in enterprises, or more precisely, toward the introduction of internal controls in public utility enterprises founded by local self-government units.…”

Fraud and its relationship to pandemics and economic crises: from Spanish flu to COVID-19

“…Fraud reported in the media Toms (2019) provides evidence on the patterns of fraudulent behaviour over extended periods of time, based on content analysis of contemporary news sources in the United Kingdom and the United States (1850-2009) and a database of 221 British corporate scandals . This analysis is very useful and competent, but his chosen focus is on the implications for auditing, and most 'garden variety' frauds are of little interest to auditors or to political economists, and therefore fall beyond Toms' purview.…”

“…Gray, Frieder and Clark (2005: 41) argue that factors shown to be significant to financial bubbles include rapid economic and monetary expansion, the presence of 'first-time and/or unsophisticated investors', and economic slowdown revealing and aggravating the problems of the companies involved. Toms (2019) shows how clusters of technological changes enlarge the opportunities for fraud by increasing uncertainty and information asymmetry, with the asymmetry making it harder both for investors and regulators to monitor fraud (see also Hollow 2015), but whether this applies to all forms of fraud is open to question.…”

Accounting fraud before codification: An inquiry on budget misstatements in eighteenth-century Venice

“…As previously highlighted, given the absence of specific legislation about both accounting and fraud in the eighteenth century, the same identification of an accounting fraud appears problematic. For this reason, two studies included in the selected literature, and concerning relevant fraud cases that happened in the eighteenth century, may be helpful (Van Driel, 2019, ID1; Toms, 2019, ID2; Kadens, 2010, ID5, Table 1).…”

“…The individual consequences represent the result of the fraudulent intentions when subjects become vectors of riskiness and danger (Foucault, 1981, 2004) The second type of fraud consequences (i.e. general domain) is especially relevant for the political authorities; institutional arrangements try to prevent and/or mitigate fraud in different ways in different historical periods (Toms, 2019, ID2, Table 1). The role of such interventions lasts before, during and after fraud.…”