Lesson 8 - System Of Risk Management And Internal Control Flashcards
What is Risk
Risk is the effect of uncertainty on objectives - whether positive or negative
Why is risk increasingly important - why?
Ensuring viability in an uncertain world AIRMIC 2017
Increase speed of change
Increased need for transparency
New risk types (rep risk, cyber risk)
Explain key elements of corporate governance in Risk
Corp Governance must
1- define the risks of the organization
2-ensure risks are understood and managed
3- ensure robust controls are in place to remain within risk appetite
4- create a Risk Culture
Uk Corporate Governance Code and Risk and the boards role
Board should carry out a robust assessment of a company’s principle risks
And should monitor the company’s risk management and internal control systems
And report on the effectiveness in the Annual Report
Explain the types of business risk and governance risk
Business risks include
- Reputation risk
- Liquidity risk
- Environment risk
Governance risks considered
* policy governance framework
* new product processes
* MI - financial performance
* MI- risk appetite, etc
*people and culture
top of house accountability & transparency throughout the org
Types of controls
Preventative
Detective
Mitigating - corrective
Internal controls should be
-Effective
- Reliable
- Compliant with laws ®ulation
Smart
Specific
Measurable
Achievable
Relevant
Time bound
Issues with controls
1-poorly designed
2-not applied properly
3-circumvented
Also controls must be SMART
Specific
Measurable
Achievable
Relevant
Time bound
Key elements of a risk management and internal control system
Coso (committee of sponsoring Organization)
Enterprise Risk Management - integrating strategy and performance
consists of 5 parts
1-governance and culture
2-strategy & objective setting
3-Performance
4-review and revision
5-info, communicating, reporting
How to develop a risk management system
DARMA
Define risk (map, stress test)
Assess risk (likelihood, size, RAG)
Respond (Avoid/mitigate/transfer)
Monitor effective SMART measure
Report on risk at the Board
Benefits of risk management system
- achieve business objectives
- monitor & mitigate risk
- ensure regulatory compliance
- protect & enhance value
- build investor confidence
- contribute to informed decisions
Role of CoSec in risk
1-develop objectives
2-advise on mitigation risk
3-monitor risk mgt-int control
4-communication- annual report
Long term viability
Within the Annual Report the Board should
Explain how it has assessed the prospects of the company over a specific period and why the period is considered appropriate
The board should state whether the company will be able to continue its operation and meet its liabilities drawing attention to qualifications and assumptions
Sustainability
Is about ensuring the long term survival of the organization
It requires a balance of current and future needs
