COSO’s Effective Enterprise Risk Oversight: The Role of the Board of Directors is focused on aiding boards of directors in strengthening their enterprise risk oversight responsibilities. The current economic crisis has caused the role of the board of directors to become far more challenging than in the past. The thought paper highlights critical board responsibilities by using four specific areas in COSO’s Enterprise Risk Management – Integrated Framework that contribute to board oversight of enterprise risk management. Those four board areas of responsibilities are as follows:
- Understand the entity’s risk philosophy and concur with the entity’s risk appetite.
- Know the extent to which management has established effective enterprise risk management of the organization.
- Review the entity’s portfolio of risk and consider it against the entity’s risk appetite.
- Be apprised of the most significant risks and whether management is responding appropriately.
According to COSO, active oversight by the board of directors can help strengthen an organization and better prepare them to face significant risk exposures. ERM increases risk awareness and encourages a proactive management of those risks. The thought paper emphasizes that it is critical for board members to be involved in governing risk management policies and help management address strategic risk issues.
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