Internal control in the wake of the Enron scandal - legislation or self-regulation?

Abstract

Background & Problem Discussion: The collapse of Enron together with several other scandals contributed to the creation of the Sarbanes Oxley Act, imposing heavy demands on accounting ethics for businesses listed on the stock exchange in the US. In Sweden, the Swedish Code of Corporate Governance was introduced, but instead of being a law, it is based on self-regulation. The purpose of both SOX and the Code is to gain the trust of potential investors by ensuring that companies are managed as effectively as possible in accordance with the interests and the objectives of the share holders. As both exist for a common purpose, this study will try to answer which one that better fulfills the purpose, by investigating Swedish companies view on the topic. Purpose: This study will try to answer, out of Swedish companies’ perspective, what is most effective, self-regulation, with the possibility to either comply or give an explanation for not complying, or detailed regulation by law? Delimitations: This study is limited to investigating companies listed on the US or Swedish stock market. Focus is put on Sarbanes-Oxley Act and Swedish Code of Corporate Governance, in particular their regulation of internal control. Methodology: Initially, laws and regulations were investigated to form a framework upon which further studies throughout the report were based. The empiric consists of eight interviews, which were summarized and analyzed, from which conclusions were drawn. Result and Conclusions: There is no reason to abandon self-regulation. Instead, an overall better framework with some compulsory rules should be developed, in order to provide the best possible help in improving the internal control. Suggestions on Future Studies: In would be interesting to study what view the accounting firms have on the topic. Furthermore it would also be interesting to interview other employees within the organizations, to learn what changes they have observed. Finally, it would be interesting to investigate if companies have a different view on internal control in a few years from now.