On the 10th anniversary of Enron collapse, the
Chartered Institute of Internal Auditors (CIIA) said the focus on
risk management and internal control has increased considerably and
should remain a priority for board members.
Enron Corporation was a US energy company
based in Houston, Texas. At the end of 2001 it went into bankruptcy
after it was revealed its reported financial condition was
sustained substantially by accounting fraud.
The US Senate Committee’s subsequent
investigation into the company’s collapse highlighted the conflict
of interest generated by the outsourcing of internal audit to its
external auditors Arthur Andersen as a major factor in Enron’s
downfall. As a consequence of the scandal, Arthur Andersen
collapsed in 2003.
The institute’s chief executive Ian Peters
stressed that one significant change post-Enron has been the
widespread acceptance that external and internal audit need to be
properly independent of one another.
“While companies may devise systems to prevent
conflicts of interest arising, the continued intense focus on
corporate governance means that investors are likely to require
extensive reassurance on these sorts of arrangements,” Peters said.
The UK’s Corporate Governance Code now
requires audit committees to provide an explanation of how external
auditor objectivity and independence is safeguarded if the
company’s external auditor also provides it with non-audit
services, including internal audit.
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