Internal Audit - Role in Risk Management

Role in Risk Management

Internal auditing professional standards require the function to monitor and evaluate the effectiveness of the organization's Risk management processes. Risk management relates to how an organization sets objectives, then identifies, analyzes, and responds to those risks that could potentially impact its ability to realize its objectives.

Under the COSO enterprise risk management (ERM) Framework, risks fall under strategic, operational, financial reporting, and legal/regulatory categories. Management performs risk assessment activities as part of the ordinary course of business in each of these categories. Examples include: strategic planning, marketing planning, capital planning, budgeting, hedging, incentive payout structure, and credit/lending practices. Sarbanes-Oxley regulations also require extensive risk assessment of financial reporting processes. Corporate legal counsel often prepares comprehensive assessments of the current and potential litigation a company faces. Internal auditors may evaluate each of these activities, or focus on the processes used by management to report and monitor the risks identified. For example, internal auditors can advise management regarding the reporting of forward-looking operating measures to the Board, to help identify emerging risks.

In larger organizations, major strategic initiatives are implemented to achieve objectives and drive changes. As a member of senior management, the Chief Audit Executive (CAE) may participate in status updates on these major initiatives. This places the CAE in the position to report on many of the major risks the organization faces to the Audit Committee, or ensure management's reporting is effective for that purpose.

Internal auditors may help companies establish and maintain Enterprise Risk Management processes. Internal auditors also play an important role in helping companies execute a SOX 404 top-down risk assessment. In these latter two areas, internal auditors typically are part of the risk assessment team in an advisory role.

Read more about this topic:  Internal Audit

Famous quotes containing the words role in, management, role and/or risk:

    So successful has been the camera’s role in beautifying the world that photographs, rather than the world, have become the standard of the beautiful.
    Susan Sontag (b. 1933)

    People have described me as a “management bishop” but I say to my critics, “Jesus was a management expert too.”
    George Carey (b. 1935)

    What is charm then? The free giving of a grace, the spending of something given by nature in her role of spendthrift ... something extra, superfluous, unnecessary, essentially a power thrown away.
    Doris Lessing (b. 1919)

    If the only new thing we have to offer is an improved version of the past, then today can only be inferior to yesterday. Hypnotised by images of the past, we risk losing all capacity for creative change.
    Robert Hewison (b. 1943)