CHAPTER 4

• Business risk


  The possibility that the business may not be able to generate sufficient revenue, or an increase in production and operating costs might occur
• Compliance risk


  The risk that the company might fail to comply with applicable laws, regulations, and contractual obligations to other entities
• Credit risk


  The risk that a counter-party, such as a customer or a borrower, will fail to pay his/her account on the due date
• Enterprise Risk Management


  A process effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, to manage risk to be within its risk appetite, and to provide, reasonable assurance regarding the achievement of entity objectives
• Environmental risk


  The risk that the company may fail to control or minimize factory wastes, emissions, and other pollutants arising from its business activities
• Financial reporting


  The possibility that the financial statements of the company will be incorrect due to errors, lapses, or failure to apply accounting standards
• Financial risk


  The likelihood that the company might incur a financial loss, or suffer a decline in profit, capital, investment, or cash flows on account of the occurrence of events or transactions
• Foreign currency risk


  The risk that fluctuations in exchange rates will affect the profit of the business
• Fraud risk


  The risk arising from intentional and deceptive acts that result in loss of company assets, resources, and reputation
• Health and safety risk


  The risk that unforeseen events could result in injuries, illnesses, or even loss of lives
• Impact


  The significance or magnitude of the risk on its effect on the company
• International Financial Reporting Standards (IFRS)


  A set of internationally accepted accounting standards intended to promote quality and transparent financial reporting
• Interest rate risk


  The potential decline in earnings and capital arising from changes in interest rates in the market
• Likelihood


  The probability that the event will occur
• Liquidity Risk


  The risk that the business would be unable to meet its financial obligations as they fall because of insufficient cash and inability to liquidate assets or obtain adequate funding on short notice
• Operational risk


  The risk that business operations will be disrupted due to inadequate or failed systems, processes, people, breaches in internal controls, or other unforeseen catastrophes
• Price risk


  The risk that changes in specific prices (stock price, price of other investments) could affect the profit or cash flow of the business
• Reputational risk


  The risk that the reputation or image of the company will be damaged due to reasons such as improper acts of corporate officers, poor performance, and bad news about the company among others
• Risk


  The possibility that an event will occur and adversely affect the achievement of enterprise objectives
• Risk appetite


  The level of risk that the company can accept in pursuit of its objectives
• Risk assessment


  The process of analyzing the identified risks in terms of "likelihood" and "impact"
• Risk identification


  The process of identifying risks that can prevent the business objectives of the company
• Risk response


  The process of selecting the appropriate risk response or action based on the result of the risk assessment
• Strategic risk


  The risk of selecting an inappropriate corporate strategy or the failure of implementing an appropriate one
• Committee of Sponsoring Organizations of the Treadway Commission (COSO)


  Meaning of COSO
• ISO 31000-Risk Management


  A series of risk management standards formulated by the International Organization for Standardization; provides a set of principles for the design, implementation, and evaluation of risk management
• International Organization for Standardization

  An independent, nongovernmental organization that develops voluntary international standards and is comprised of 165 member countries; founded in 1947
• COSO Enterprise Risk Management (COSO ERM)


  Established to study the cause of fraudulent financial reporting during the latter part of the 1980s; published in 2004
• Strategic Objectives


  High-level goals aligned with and support the organization's mission and long-term goal
• Operational Objectives


  Goals that are related to the effective and efficient use of corporate resources
• Reporting Objectives


  Goals relating to the reliability and transparency of corporate reports such as financial and nonfinancial reports
• Compliance Objectives


  Goals relating to compliance and conformity with applicable laws and regulatory requirements
• Risk Matrix


  Comprehensive listing of all risks affecting the company; "known" risks
• Board of Directors


  Conducts an oversight of the company's risk management process
• Risk Oversight


  Periodic review and monitoring of the process being used by management in addressing and controlling risks
• Management


  Implements specific risk mitigation and control procedures in managing the various types of risks affecting the company
• Internal Auditors


  Conduct examination of the risk management process for the purpose of determining its effectiveness over time
• Internal Events


  Events that occur within the company
• External Event


  Events that happen outside the company