Chapter 11

 The board is ultimately responsible for risk management  Oversee strategic risks, operational risks, and financial risks  Many federal regulations have been put in place to evaluate risk management  The Board also presents a risk in Corporate Governance

 The mechanisms and procedures that determine how corporations are run;  Medium to large corporations have separation of ownership and control, which means the corporation is owned by its shareholders but controlled by its board of directors and managers;  CG ensures that mgmt and the Board operate with the best interests of the owners in mind.

 Incentive compensation  Legal Liability  Management reputation  Takeover threats

 Board risk committee  Board audit committee  Finance committee  Chief risk officer (CRO)

 Implements the risk management process at all times and levels  Identifies risks  Sets the company’s tolerance for risk  Prioritizes risks to be handled

 Executive in charge of overseeing the risk management department  Communicates with the board on risk decisions and policies

 Evaluates the company’s compliance to regulations and financial reporting standards  Focus on compliance with standards already in action  Work with internal and external auditors  Responsible for annual financial reporting

 Committee of Sponsoring Organizations of the Treadway Commission (COSO)  3 objectives:  1.Effectiveness and efficiency of operations  2. Reporting  3. Compliance

Control Environment Risk Assessment Information and Communication Control Activities Monitoring

 The board sets policy and appoints authority for implementing the risk management objectives  The management of the risk department are responsible for creating internal controls to monitor risk  Employees support the risk management department  Auditors monitor compliance of the internal controls

 Internal controls can indicate changes in risk  Productive risk monitoring uncovers risk while still manageable  Not every risk can be identified

 The internal audit department assess the company’s success in completing their objectives  Evaluation and assessment  Approve existing internal controls  Ensures accuracy  External auditors verify financial reporting

 Complementary functions  Risk management pinpoints and prioritizes risks then establishes plans to manage the risks  Internal auditors examine and investigate the internal controls put in place by the risk management

 3 Principles  Audit to business objectives  Materiality of the risk focus  Identify threats to the success of the business

 Level of confidence in the risk management department as a whole  Reduces cost and increases value  Several benefits

 CRSA: management tool designed to self- audit risk assurance within a certain area of responsibility  Evaluates effectiveness, focuses on goals and threats, and allows managers to get a better understanding of where the company is falling short and standing out

 The flow of accurate information throughout the entire chain of command within the business is the focus  Timely and detailed  User-friendly format is important