Question

Explain how governance failures such as Enron and the global financial crisis could happen. How might they be avoided?

Answer 1

The main reasons for the governance failures such as Enron and the global financial crisis were the non-adherence of the corporate governance policies, not conducting the external and third-party audit, to show the inflated earnings and to hide the different types of debts in some special purpose firms, or entities. All these elements resulted in the form of financial and governance failure

In order to overcome these types of events in the future, it is important to ensure the strict adherence of corporate governance and to have laws such as SOX Act. Apart from this, this is also important to have the accounting standards for the organizations so that the common accounting audit can be performed and the same standards are being used by all the firms. These standards will make sure that the accounting transactions are done with full transparency, precisions, separation of duty, and accountability and all this will help in avoiding any future financial scams.