ent format is not necessarily always to be approached in numerical order but that they are eight parts of a 'multidirectional, iterative process in which almost any component can and does influence another' (COSO, 2007) In any case, those eight recommended components of enterprise risk are briefly described as follows:
Internal Environment
Perhaps related in some aspects to company 'culture' a corporation's internal environment is determined by the feelings and philosophies of the people and their management group. The company's general perspectives on risk tolerance, ethics and integrity set the tone of its internal environment.
Objective Setting
A company must determine its own objectives before deciding on the course of events that will lead to their achievement. The best course will be the one that is aligned with the values of the company's internal environment.
Event Identification
In the course of proceeding towards its objectives certain events will be encountered and it must be determined whether they comprise a risk or an opportunity. Risks will require further
Assessment (as shown in the next component) while opportunities will be considered under re-evaluation of objective setting.
Risk
Assessment
Risks can be analyzed both according to their likelihood of occurrence and their potential for creating loss or damage and assessed as per the perspectives of the internal environment.
Risk Response
In its approach to risk a company must determine its responses according to its views and tolerances for risk. The management may choose to either avoid or accept the risk, or find ways to reduce it and its negative impact.
Control Activities
A company must have pre-determined policies and procedures in place to ensure risk responses are appropriate, aligned with company philosophy and are implemented effectively.
Information and Communication
Communication regarding progress towards company goals and the events that precede their being reached needs to reach all levels and depth of the organization, keeping all parties informed, allowing them to best perform their duties.
Monitoring
Monitoring is the key to successful risk management with oversight allowing for decisions and changes to be made. It is management's duty to monitor risks and minimize any negative effects through various means.
LBM's General Implementation Plan
The COSO recommendations can be described as a format for performing internal audits as a way of enterprise risk management. To initially generate this format in a way that best suits the needs of the company, LBM's top management team should assess its own corporate culture and define its own tolerances for risk. This management team also needs to formally define and establish its views on ethics and integrity. One way to make these philosophies official is to create a company mission or vision statement, which can be prominently displayed around the company and found in employee
handbooks. Once these standards and mores are firmly established, the team can then move on to defining the organization's objectives.
In this case LBM has
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