Lesson 59 - Advanced Accounting Course

Lesson 59: Enterprise Risk Management (ERM) Frameworks

🧠 What Is Enterprise Risk Management (ERM)?

Enterprise Risk Management (ERM) is a structured approach to identifying, assessing, managing, and monitoring the risks that could affect an organization’s success.

🔍 It helps businesses make better decisions by understanding potential threats and opportunities.

📌 Goal: Manage risks proactively across all departments—not just react after something bad happens.

🛡️ Why Is ERM Important in Accounting?

• 📉 Prevents financial losses from fraud, errors, or system failures
  
  

• 📊 Helps with accurate financial reporting
  
  

• ⚖️ Ensures compliance with laws and regulations
  
  

• 🧾 Supports strategic decisions (e.g., mergers, investments)
  
  

🌐 Common Risk Categories

🧰 Popular ERM Frameworks

1. COSO ERM Framework (most widely used)

Developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)

✅ COSO is integrated into accounting and internal control systems—perfect for accountants and auditors.

2. ISO 31000 Framework

An international standard for managing risk, published by the International Organization for Standardization

✅ ISO 31000 focuses on culture and continuous improvement.

🧾 Example: ERM in Action

Scenario: A multinational company faces cyber risks, fluctuating currency values, and regulatory pressure.

ERM Steps:

1. 🧠 Identify Risks: Cyber threats, FX volatility, tax changes
   
   

2. ⚖️ Assess Risks: Which ones are most severe or likely?
   
   

3. 🛠️ Respond: Install stronger cybersecurity, hedge currency, consult tax advisors
   
   

4. 📊 Monitor & Report: Monthly updates to the Board
   
   

5. 🔄 Revise: Update based on changes in tech or law

✅ Summary Table

📎 Bonus Tips for Students

• ✅ Think of ERM as a company-wide safety net
  
  

• 🧑‍💼 Accountants are key to identifying and tracking financial and operational risks
  
  

• 📈 Strong ERM = Better business decisions, fewer surprises