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


Head of Internal Audit

Vice-Chancellor's Office
Starting from £47,328, rising to £54,841
Reference: CT3119

Careers advice

Chartered by Experience

There is a new route to becoming a chartered internal auditor: Chartered by Experience.

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.

Training & Development

Talent contest

As growth has returned to the UK economy, so has competition for the best people. Internal audit often gets involved in checking compliance with employment regulations, but do you regularly consider your organisation’s approaches to attracting the right staff and keeping them? How can you assure the board that the business has the right people in place now and in the pipeline?
Words: Wilma Tulloch

Businesses struggle to recruit skilled staff

Years of cutting investment in training and development has led to a shortage of skilled professionals, according to new research by Robert Walters. Companies need to start training again, the recruitment consultancy, warned, but they also need to look further afield for new employees.

Prize performance

Abigail Francis, principal auditor at Mazars, won this year’s Charles Duly Prize for the best aggregate performance in the IIA Diploma exams. She explains how she did it.


Top tips for managing social media risk

The FCA is drafting guidelines to help financial services organisations deal with their increasing use of social media. Much of the advice will also be useful for those in less strictly regulated sectors. So what areas should organisations be considering now? James Leavesley, CEO of CrowdControlHQ gives his top tips.

You asked us

Our technical helpline provides valuable advice to members on a host of professional issues. Here are some of the questions you’ve submitted recently.

Spring clean your reporting style

Sara I James offers advice on one of the toughest audit tasks: drafting, reviewing and issuing the audit report.