Enron Internal Control Essay

1355 Words 6 Pages
There were many reasons for the downfall of Enron, corporate governance being one of the main. The Corporate Governance Code issued by the Financial Reporting Council (2010) defines corporate governance as ‘the system by which companies are directed and controlled’. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are …show more content…
Internal control is defined by IAS 35, paragraph 4 (c) the as, ‘The process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. The term “controls” refers to any aspects of one or more of the components of internal control.’
When assessing internal controls, we must look to prove the element of internal control which are the control environment, entity’s risk assessment processes, the information systems, control activities, and the monitoring of controls (Gray, Manson and Crawford, 2015).
Enron did have an effective internal control system in place. It was one of the few large companies that had a corporate governance committees, in the late 1990s (Gillan et al., 2003). It also had an effective finance committee in place, which was possessed by less than half of the companies on the S&P 500 (Adams, et. al. 2002). They also had an extremely talented panel of top managers who would have looked into what happened in the company. Despite having all of it in place, to deceive the eyes of the public, Enron chose to put the interest of the top management before that of the

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