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1、Applying COSOs Enterprise Risk Management Integrated Framework September 29, 2004 Todays organizations are concerned about: Risk Management Governance Control Assurance (and Consulting) ERM Defined: “ a process, effected by an entitys board of directors, management and other personnel, applied in st
2、rategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.” Source: COSO Enterprise Risk Management Integrated Framework.
3、2004. COSO. Why ERM Is Important Underlying principles: Every entity, whether for- profit or not, exists to realize value for its stakeholders. Value is created, preserved, or eroded by management decisions in all activities, from setting strategy to operating the enterprise day-to-day. Why ERM Is I
4、mportant ERM supports value creation by enabling management to: Deal effectively with potential future events that create uncertainty. Respond in a manner that reduces the likelihood of downside outcomes and increases the upside. This COSO ERM framework defines essential components, suggests a commo
5、n language, and provides clear direction and guidance for enterprise risk management. Enterprise Risk Management Integrated Framework The ERM Framework Entity objectives can be viewed in the context of four categories: Strategic Operations Reporting Compliance The ERM Framework ERM considers activit
6、ies at all levels of the organization: Enterprise-level Division or subsidiary Business unit processes Enterprise risk management requires an entity to take a portfolio view of risk. The ERM Framework Management considers how individual risks interrelate. Management develops a portfolio view from tw
7、o perspectives: - Business unit level - Entity level The ERM Framework The eight components of the framework are interrelated The ERM Framework Internal Environment Establishes a philosophy regarding risk management. It recognizes that unexpected as well as expected events may occur. Establishes the
8、 entitys risk culture. Considers all other aspects of how the organizations actions may affect its risk culture. Objective Setting Is applied when management considers risks strategy in the setting of objectives. Forms the risk appetite of the entity a high-level view of how much risk management and
9、 the board are willing to accept. Risk tolerance, the acceptable level of variation around objectives, is aligned with risk appetite. Event Identification Differentiates risks and opportunities. Events that may have a negative impact represent risks. Events that may have a positive impact represent
10、natural offsets (opportunities), which management channels back to strategy setting. Event Identification Involves identifying those incidents, occurring internally or externally, that could affect strategy and achievement of objectives. Addresses how internal and external factors combine and intera
11、ct to influence the risk profile. Risk Assessment Allows an entity to understand the extent to which potential events might impact objectives. Assesses risks from two perspectives: - Likelihood - Impact Is used to assess risks and is normally also used to measure the related objectives. Risk Assessm
12、ent Employs a combination of both qualitative and quantitative risk assessment methodologies. Relates time horizons to objective horizons. Assesses risk on both an inherent and a residual basis. Risk Response Identifies and evaluates possible responses to risk. Evaluates options in relation to entit
13、ys risk appetite, cost vs. benefit of potential risk responses, and degree to which a response will reduce impact and/or likelihood. Selects and executes response based on evaluation of the portfolio of risks and responses. Control Activities Policies and procedures that help ensure that the risk re
14、sponses, as well as other entity directives, are carried out. Occur throughout the organization, at all levels and in all functions. Include application and general information technology controls. Management identifies, captures, and communicates pertinent information in a form and timeframe that e
15、nables people to carry out their responsibilities. Communication occurs in a broader sense, flowing down, across, and up the organization. Information & Communication Monitoring Effectiveness of the other ERM components is monitored through: Ongoing monitoring activities. Separate evaluations. A com
16、bination of the two. Internal Control A strong system of internal control is essential to effective enterprise risk management. Expands and elaborates on elements of internal control as set out in COSOs “control framework.” Includes objective setting as a separate component. Objectives are a “prerequis
