July 24, 2003 by Canadian Underwriter
Several financial associations are working together on a framework for enterprise risk management (ERM). The Committee of Sponsoring Organizations of the Treadway Commission (COSO), which combines five accountancy and finance organizations, commissioned the framework from Pricewaterhouse Coopers early last year. Among the authors are members of PwC’s Canadian team.
The framework looks at the expectations of senior management and boards, and provides standards against which organizations can measure their level of ERM. The framework is intended to apply to organizations regardless of size, and whether they are public or private.
Among the processes highlighted are: identifying external and internal factors that lead to an event; assessing how an event’s likelihood and impact; risk response options, such as insurance; and communication strategies.
“This study could not be under way at a more appropriate time,” says John J. Flaherty, chairman of COSO and retired general auditor for PepsiCo Inc. “With the fallout from September 11th and the Enron demise, corporations worldwide are facing a watershed in recognizing the need for stronger risk management systems. Corporate risk management is more critical than ever, yet until now, there hasn’t been a comprehensive framework.”
COSO is accepting feedback on the draft framework for the next three months and expects to release the final framework in 2004. The executive summary is at www.erm.coso.org.