COSO Releases “Enterprise Risk Management

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has announced the release of the Enterprise Risk Management—Integrated Framework. The Framework describes the essential components, principles, and concepts of enterprise risk management for all organizations, regardless of size.

The AICPA has key resources for members available, in the AICPA store at www.cpa2biz.com or by phone at 1-888-777-7077, including:

COSO Enterprise Risk Management—Integrated Framework, available as a
two-volume paperback and electronic (PDF) versions (Product No.990015)

Internal Control Reporting for Public Companies (CD-Rom), a CPE self-study course, based on a recent AICPA Web cast (Product No. 737132HS)

“With heightened concern and focus on risk management,” COSO announced, “the Framework provides boards of directors and managements a clear roadmap for identifying risks, avoiding pitfalls, and seizing opportunities to grow stakeholder value.”

COSO recognizes that many organizations may be engaging in some aspects of enterprise risk management. No common base of knowledge and principles exists, however, to enable boards and senior management to evaluate an organization’s approach to risk management and assist them in building effective programs to identify, measure, prioritize, and respond to risks. With this publication, businesses as well as other organizations have, for the first time, a principles-based framework to identify all aspects that should be present in every company’s enterprise risk program and ways to implement them successfully.

The Framework addresses many issues currently faced by organizations, such as how to determine the right amount of risk, given the value an organization is striving to create for stakeholders, and the response to risk that will best protect and enhance value. It also addresses the role of the board of directors, senior management, and other corporate officers in enterprise risk management. An accompanying document, Application Techniques, illustrates how effective enterprise risk management concepts and principles may be successfully applied in the competitive business environment.

“This Framework could not be completed at a more appropriate time,” said John J. Flaherty, chairman of COSO. “Organizations worldwide now recognize the linkage between corporate governance, enterprise risk management, and entity performance. Many seek to improve processes for identifying, analyzing, and managing risks. Yet, until now, there hasn’t been a comprehensive framework that truly met the far-reaching demands of the new regulatory and competitive environment. Successfully managing risk drives better business performance and facilitates achievement of strategic, operations, reporting, and compliance objectives.”

Built on the foundation of COSO’s Internal Control—Integrated Framework, being used by many American businesses to comply with the Sarbanes-Oxley Act requirements, this new Framework is expected to be widely accepted as the benchmark for addressing business risk, COSO said.

COSO engaged PricewaterhouseCoopers in 2001 to lead the development of Enterprise Risk Management—Integrated Framework, after concluding there was a need for a broadly recognized enterprise risk management framework. COSO appointed an advisory council with members from the five COSO organizations and chaired by Tony Maki, a partner with Moss Adams, to work with PricewaterhouseCoopers in the development of the framework. Because of the importance of the project, the Framework was exposed for public comment before final publication.

COSO is a voluntary, private-sector organization dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance. The members of COSO are the American Institute of Certified Public Accountants, the American Accounting Association, Financial Executives International, the Institute of Management Accountants, and The Institute of Internal Auditors. COSO was originally formed in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, known as the Treadway Commission, an independent private-sector initiative which studied the causal factors that can lead to fraudulent financial reporting and developed recommendations for public companies and their independent auditors, for the Securities and Exchange Commission and other regulators, and for educational institutions. COSO then published Internal Control— Integrated Framework, also authored by PricewaterhouseCoopers. Other COSO studies include Internal Control Issues in Derivatives Usage and Fraudulent Financial Reporting, 1987-1997—An Analysis of U.S. Public Companies.