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Jim Tholey Gambling With or Managing Risks ?. 2 A. Business Environment 1. Management Team 2. Risk Management/Evaluation 3. 4. B. Financial & Operating.

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Presentation on theme: "Jim Tholey Gambling With or Managing Risks ?. 2 A. Business Environment 1. Management Team 2. Risk Management/Evaluation 3. 4. B. Financial & Operating."— Presentation transcript:

1 Jim Tholey Gambling With or Managing Risks ?

2 2 A. Business Environment 1. Management Team 2. Risk Management/Evaluation 3. 4. B. Financial & Operating Env. 5. Susceptible to misappropriat., fraud, loss 6. Compl./Adequacy of Internal Mgmt Rpt 7. 8. 9. 10 11 12 C. Info Tech Financial Automation D. Governance, Intrnl Cntrl & Compl 13. Corporate Governance 14. Internal Control Environment 15. 16. 17. Risk Factors TOTAL – RISK QUANTIFICATION Impact 100 Fin/ Acct WgtHR Dept 2 LegalComplIT Purchas- ing AdminMrktg Dept B Dept C PRDiv 1Sub A 218163249157166277191145246153174142218186 Fin/ Acct WgtHRRegsLegalComplIT Purchas- ing AdminMrktg Dept B Dept C PRDiv 1Sub A 1. Impact 2. Risk 3. Risk –. TOTAL – IMPACT QUANTIFICATION 100220180300200220260140100240 180 260180220 Risk Rating: Low (0-130) Medium (131-210) High (211-300) RISKY INC. RISK ASSESSMENT MODEL – 2007

3 3 Relative weights 15%10%20%15% 5%15%5%100% ABC Corporation 2007 Business Processes Complexity/ Volume of Trans-actions Level of Auto- mation (inverse scoring) Level of Estimation/ Judgment Reportin g Complex ity/ Prior Period Changes Process Nature/ Inherent Risks Routine Non- routine Susceptibi lity of loss due to errors/ fraud Related Party Trans- actions Weighted Average Risk Score Financial Closing & Reporting HighMed High Med LowHigh Fixed Assets LowMed Low Med Low Purchasing, AP & Disbursements Med Low HighLowHighLowMed Treasury/Equity MedHigh Med HighMedLowHigh Revenue, AR & Receipts Med LowHighLowHighLowMed Inventory Med HighLowMed Record & Monitor Debt LowMedLow Commitments & Contingencies LowMed LowMed Low Med Payroll & Benefits LowMedLow MedLowMedLow Income Tax HighMedHigh Med LowHigh Intangibles and Impairment MedHigh MedLowHigh Cash Handling Med Low MedLowHighLowMed Consolidations Med LowMed Note: Level of Automation evaluation text relates directly to automation of the process. The risk scoring is inverted (i.e. High = more automation thus less risk, while Low = less automation more risk) Sample SOX Qualitative Risk Assessment (Heat Map)

4 4 Qualitative Assessment of Accounts/Processes Qualitative Risk Factors (from PCAOB AS2)Weights Category 1Category 2Category 3 RateScoreRateScoreRateScore Estimation20 Routine/Non-routine10 Automatic/Manual10 Account/Reporting Complexity/Changes from Prior Period 10 Susceptibility of Loss Due to Errors or Fraud10 Complexity/Homogeneity & Volume of Activity10 Nature of Accounts (Suspense/Reserve, etc.)10 Likelihood of Significant Contingent Liabilities10 Existence of Related Party Transactions10 TOTAL100 Risk RatingsRating No Risk or N/A 0 Low1 Medium Low2 Medium3 Medium High4 High5 Risk ScoreScore Low0-150 Medium150-300 High300-500 Risk Factors are taken directly from AS2/AS5 Risk Factors are taken directly from AS2/AS5

5 5 Risk & Impact Analysis – Risky Company RISK IMPACT BUSINESS UNIT HEAT MAP HIGH MED LOW Information Technology Supply Chain Management Finance/Acctg Compliance Marketing Purchasing Investor Relations Human Resources Legal Administration Public Relations

6 6 Risk/Impact Corridor – Risky Company RISK IMPACT RISK CORRIDOR HIGH MED LOW BUSINESS UNIT HEAT MAP Investor Relations Public Relations Information Technology Supply Chain Mgmt Finance/Acctg Compliance Marketing Purchasing Human Resources Legal Administration

7 7 Risk & Impact Analysis – Risky Company Audits are in italics AUDIT UNIVERSE HEAT MAP RISK IMPACT HIGH MED LOW Capacity Planning Business Continuity Planning Disaster Recovery Plant Operations Supply Chain SOX Compliance Financial Reporting Compliance Revenue Receivables Cash Receipts Human Resources Cash Reimbursements Purchasing Marketing Accounts Payable Investments Public Relations Physical Security T&E Reporting Budgeting Bank Reconciliations Payroll Facilities Fixed Assets Legal – Corp Secretary

8 8 Risk & Impact Corridor – Risky Company AUDIT UNIVERSE HEAT MAP RISK IMPACT HIGH MED LOW RISK CORRIDOR Capacity Planning Business Continuity Planning Disaster Recovery Plant Operations Supply Chain SOX Compliance Financial Reporting Compliance Revenue Receivables Cash Receipts Human Resources Cash Reimbursements Purchasing Marketing Accounts Payable Investments Public Relations T&E Reporting Budgeting Physical Security Bank Reconciliations Payroll Facilities Fixed Assets Legal – Corp Secretary


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