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A New, Practical Look at the Old COSO Framework

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List and discuss the parts of COSO's enterprise risk management framework. ... People committing fraud and / or making mistakes. Risk taxonomy. Strategic risk ... – PowerPoint PPT presentation

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Title: A New, Practical Look at the Old COSO Framework


1
A New, Practical Look at the Old COSO Framework
Institute of Management Accountants 2007 annual
conference
  • Dr. Bob Hurt, C.M.A., C.F.E.
  • Robert.Hurt_at_gmail.com

2
Outline
  • Objectives
  • Risk taxonomy
  • Committee of Sponsoring Organizations (COSO)
  • Enterprise Risk Management Integrated Framework
  • Implementation suggestions
  • Case study
  • Application

3
Objectives
  • When were finished today, I hope you can
  • Explain a comprehensive way to talk about risk.
  • List and discuss the parts of COSOs enterprise
    risk management framework.
  • Apply both to real-life situations.

4
Risk taxonomy
  • Brown suggested a four-part taxonomy for talking
    about risk.
  • His is not the only choicebut it is one good one.

Brown, B. Step-by-Step Enterprise Risk
Management in Risk Management. September 2001,
pp. 43 49.
5
Risk taxonomy
  • Overview
  • Financial risk
  • Operational risk
  • Strategic risk
  • Hazard risk

6
Risk taxonomy
  • Financial risk
  • Market risk
  • Change in capital market factors
  • Credit risk
  • Clients unable or unwilling to pay
  • Liquidity risk
  • Insufficient cash for short-term obligations
  • Operational risk
  • Systems risk
  • Failure of information technology resources
  • Human error risk
  • People committing fraud and / or making mistakes

7
Risk taxonomy
  • Strategic risk
  • Legal and regulatory risk
  • Senior management breaking laws, resulting in
    business penalties
  • Business strategy risk
  • Poor decision making related to market competition
  • Hazard risk
  • Officers and directors liability risk
  • Senior management breaking laws, resulting in
    personal penalties

8
COSO
  • Committee of Sponsoring Organizations
  • Formed in 1985
  • Sponsored the National Commission on Fraudulent
    Financial Reporting (aka the Treadway Commission)

9
COSO
  • Five groups
  • American Institute of CPAs
  • American Accounting Association
  • Institute of Management Accountants
  • Financial Executives Institute
  • Institute of Internal Auditors

10
COSO
  • Three documents (so far)
  • Internal Control Integrated Framework
  • Enterprise Risk Management Integrated Framework
  • Internal Control over Financial
    ReportingGuidance for Smaller Public Companies

11
Enterprise Risk Management Integrated Framework
  • ERM definition
  • Objective categories
  • Organizational levels
  • Framework components

12
Enterprise Risk Management Integrated Framework
  • ERM definition
  • A process, effected by an entitys board of
    directors, management and other personnel,
    applied in strategy setting and across the
    enterprise, designed to identify potential events
    that may affect the entity, and manage risk to be
    within its risk appetite, to provide reasonable
    assurance regarding the achievement of entity
    objectives.

13
Enterprise Risk Management Integrated Framework
  • Objective categories
  • Strategic
  • How does the organization intend to compete in
    its markets?
  • Reporting
  • What information does the organization intend to
    share? How often? In what format?

14
Enterprise Risk Management Integrated Framework
  • Objective categories
  • Operations
  • What does the organization do internally?
  • Compliance
  • What laws regulations impact the organization?

15
Enterprise Risk Management Integrated Framework
  • Organizational levels
  • Enterprise
  • Division
  • Subsidiary
  • Business unit

16
Enterprise Risk Management Integrated Framework
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