Corporate Governance, Financial Accountability, and Enterprise Risk Management

Abstract

Corporate governance, financial accountability and enterprise risk management (ERM) are often treated as separate disciplines, governed by different rules and managed by different functions. This article argues that they form a single system of oversight. Governance establishes who is responsible and how they are held to account; financial accountability ensures that the information on which they rely is accurate and transparent; and ERM ensures that the risks to the organisation’s objectives are identified, assessed and managed within an agreed appetite. Failures in one area typically expose weaknesses in the others, as illustrated by corporate collapses from Enron to Satyam and Wirecard. The article reviews the theoretical foundations of governance, the main mechanisms of financial accountability, and the major ERM frameworks, including COSO (2017) and ISO 31000 (2018). It examines evidence on fraud and controls, including the Association of Certified Fraud Examiners’ 2024 study of 1,921 cases in 138 countries, which estimated that organisations lose 5 percent of revenue to fraud each year and that 43 percent of frauds are first detected through tips. It reviews the evolution of Indian governance regulation, including the Companies Act, 2013, and the Securities and Exchange Board of India’s requirement that the top 1,000 listed entities maintain a risk management committee. A simulation of 2,000 synthetic listed firms over ten years illustrates how governance and ERM interact. Firms in the weakest governance quintile had misstatements in 7.4 percent of firm-years, compared with 1.9 percent in the strongest. In a simulated crisis year, firms at the highest ERM maturity level lost about 20 to 23 percent of their market value, compared with about 42 percent for those at the lowest level. The article concludes with an integrated framework and recommendations for boards, managers and regulators.