The biggest challenges in risk management for 2023
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The biggest challenges in risk management for 2023

1 month ago · 3 min read · AICPA Insights Blog

To thrive in an ever-changing and complex risk environment, leaders look for the most effective way to mitigate an array of potential dangers that can obstruct strategic initiatives and operations.

Aiming to minimize firm-wide risk and striking a balance between risk and reward is nothing new. However, organizations can no longer approach risk management in silos or in an ad hoc manner.

Enterprise risk management (ERM) is viewed through both a 'big picture' and 'detail view' of the organization. Every employee shares responsibility in identifying risks.

A holistic approach to risk management raises consciousness in business operations and leads to increased levels of employee buy-in that will strengthen the overall implementation of ERM.

Accounting and finance professionals who find themselves developing risk management strategies or who are preparing to handle risk exposure in the future will benefit from ERM insights for the finance risk leader.

ERM is not one-size-fits-all, and your organization’s risks will differ from your competitors, but certain risks stand out as challenges for most firms.

Significant challenges in risk management today relate to environmental, social, and governance (ESG), cyberattacks and supply chain disruptions.

The successful implementation of ERM determines how these risks will affect the short-term and long-term viability of the organization.

Customers are looking for organizations they can trust

Consumers, investors, employees, and communities want to know: How is the organization protecting the environment? Is the entity operated ethically? Are employees treated well?

The focus on environmental, social, and governance (ESG) initiatives is rapidly growing, and its importance has made great strides over the last decade.

Climate change, human rights, diversity, equity and inclusion, and data security are just a few factors that ESG encompasses.

Accounting and finance professionals serve a critical role in ESG reporting. At the recent inaugural AICPA and CPA.com ESG Symposium, leaders gathered to discuss ESG drivers and evolving strategies and also touched on ESG reporting and challenges and opportunities for organizations.

Changing regulatory requirements and new reporting standards is also pushing companies to see the need for ESG advisory and assurance services.

In March 2022, the SEC recommended new rules calling for an increase in climate change disclosures. The European Union (EU) as part of the Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) also released proposals for new disclosure requirements.

The accounting profession plays a critical role with ESG. Now is a crucial time for CPAs and management accountants to hone their understanding of ESG issues. CPAs and CGMA designation holders need the right resources to work effectively in this area. Tools and information are available on the Climate & Sustainability/ESG resources page.

Frequency and severity of cyberattacks are on the rise

Cybersecurity plays a crucial role in an organization’s risk management strategy and should not rest purely on the shoulders of IT professionals.

With a significant uptick in ransomware and phishing attempts, cybersecurity programs and ERM activities are vital for entities of any size, so organizations are ready to handle attacks when they come. Cyberattacks can cause significant harm to a firm and can damage its brand and reputation, which is why minimizing risk is essential.

For CPAs, it’s crucial to protect your client’s sensitive information. The CPA cybersecurity checklist provides a list of steps you can review with your internal or external IT personnel to set priorities and determine what steps to prioritize to increase your resilience to attacks.

Finance departments must adapt to the new threats. The CGMA cybersecurity tool provides essential guidance to finance professionals on implementing risk strategies, building cyber resilience, and developing the capacity to respond quickly and effectively to cyberattacks.

Supply chains are complex ecosystems

Companies need to understand where the potential risks lie as they seek expansion and aim to stay resilient in the future.

High materials costs, labor shortages, natural disasters, cyberattacks, and logistics disruption are all factors that influence supply chains.

Building resilience and mitigating risks in your supply chain are crucial, and companies that adopt ERM and develop plans to identify risks before they emerge are well-positioned to handle them.

As a result of supply chain disruptions, there are also specific Accounting & Auditing Considerations related to these challenges that you should factor in to the risk assessment processes.

According to the 2022 Global State of Enterprise Risk Oversight report, leaders face an increasing amount of risks. However, the report states that only about one-third of organizations have complete ERM processes in place.

Risk management presents an array of challenges, but, with challenges, come opportunities.

You can play an integral part in guiding your organization through the choppy waters of implementing a robust risk management framework. Pathways to deepening your knowledge and understanding of ERM exist.

Learn more through the COSO Enterprise Risk Management Certificate Program where you will find the concepts and principles of the newly updated ERM framework.

Mari Sagedal, M.A.

Mari Sagedal is a senior content writer at AICPA & CIMA, together as the Association of International Certified Professional Accountants.

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