Audit & Risk

Lessons from Enron must not be forgotten ten years on

It’s the tenth anniversary of Enron’s collapse in December 2001. It was followed by fraud revelations at other organisations, WorldCom being the most memorable.

in CEO Blog.

Together, the impact on investors was devastating. Many of Enron’s shareholders were employees who lost pension pots. During that period, $15bn of fines and shareholder compensation was paid and top executives of the companies concerned went to prison. 

The investigation into Enron’s collapse highlighted the outsourcing of internal audit to its external auditors, Arthur Andersen, as a major factor in the company’s downfall. This created a conflict of interest that stopped dubious accountancy practices being exposed sooner.

In the UK, some of the lessons of the Enron collapse were written into what is now the UK Corporate Governance Code or the guidance issued under the Code. For example, the Guidance to Audit Committees requires them 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. 

In the wake of the 2008 financial crisis, external audit’s role as a tool to rebuild investor confidence is again a central theme. The EU’s proposals to reform the audit market, announced last week, include a ban on audit firms offering non audit service, including internal audit, to their external audit clients. 

Many say there’s a strong case for supporting this, to improve the quality of external audit. We support the proposal because it will help improve the quality of internal audit. Internal and external audit must be independent of each other for good corporate governance to flourish and renew trust amongst investors. It’s owed to those affected by catastrophic governance failure before and during the financial crisis to ensure that nothing stands in the way of effective corporate governance. Lessons learnt must not be forgotten.

Ian Peters, CEO at the IIA

The IIA: find out more

Visit the main IIA site

Jobs

Auditor / Senior Auditor

Hampshire County Council
£23,580 - £33,984 per annum
Winchester
37 hours per week, permanent

Internal Auditor (x2)

Salary: £31,063-£41,417
Location: Gateshead
Team: Audit
Directorate: Finance & Corporate Services
Contract: Permanent
Reference: 4D0302/TMP269
Recruiting Manager: Maria Craig
Closing date: 5pm on Friday 12 September 2014

Careers advice

Room to grow

If you feel stuck in your role or sector, yet are keen to progress in an internal auditing career, what are your options? You could become a non-executive director or contribute your experience to higher education, suggests Ann Brook CFIIA.

Time to volunteer

Rachel Bowden, chair of the IIA’s Guidance Working Group, explains why she started volunteering and what she has gained from the experience.

Talent: in search of the Holy Grail

“A German colleague at Zurich introduced me to the term ‘Eierlegende Wollmilchsau’ – literally an egg-laying, woolly, milk-producing pig. This is the impossible person we’re all looking for,” says Mike Taylor, head of global internal audit at Experian.

Training & Development

Insurance sector faces dearth of qualified internal auditors

PKF Littlejohn recently published findings from a survey to identify the challenges faced by HIAs in the London insurance market in implementing the IIA’s guidance "Effective Internal Audit in the Financial Services Sector". The researchers expected to find that the skills needed to audit the new Solvency II regulatory regime, and areas such as actuarial and IT, would be highlighted, but they were surprised to discover wider concerns about an overall lack of resources and talent.

Top students win prizes

The IIA awards two prizes annually to the students who have passed their exams first time with the highest aggregate marks. The 2013 awards went to Catherine Mills, who won the Charles Duly prize for her performance in the IIA Diploma exams, and Joanne Clewes, who won the Peter Hook prize for her results in the IIA Advanced Diploma exams.

Time to volunteer

Rachel Bowden, chair of the IIA’s Guidance Working Group, explains why she started volunteering and what she has gained from the experience.

Tools

How to deal with insider fraud

Insider fraud can damage a company's reputation as well as its pocket. Ensuring a properly structured approach to your investigation is key to extracting the relevant information quickly and effectively, as well as preserving the ability to rely on it in any proceedings which may follow.
By Jamie Curle, Sarah Ellington and Maria Scott at DLA Piper.

Are your employees legal?

The penalties for hiring illegal workers just got tougher. Natasha Chell asks what companies need to know about changes to the UK’s prevention of illegal working and civil penalty system.

How to recognise emerging risks

Some emerging risks are like ticking time bombs: they can erupt suddenly and dramatically without warning. In essence, they represent “hidden” risk exposures that could trigger unexpected and embarrassing surprises. Matt Taylor, a director at Protiviti UK, describes why it is key that firms recognise risks before they are too costly to remedy.