The COSO-ERM (Committee of Sponsoring Organizations of the Treadway Commission) - (Enterprise Risk Management) framework is a widely recognized model for enterprise risk management. The framework was created by the COSO organization, which is a joint initiative of five professional accounting organizations, including the American Institute of Certified Public Accountants (AICPA).
The COSO-ERM framework provides a comprehensive approach to identifying, assessing, and managing risks across an organization. It is designed to help organizations to align their risk management strategies with their business objectives and to integrate risk management into their overall governance and management processes.
The framework is based on eight components of enterprise risk management:
- Internal environment: This component includes the values, culture, and ethics of the organization and how they influence the management of risk.
- Objective setting: This involves setting clear and specific objectives for the organization, including those related to risk management.
- Event identification: This involves identifying potential events or risks that could impact the organization's objectives.
- Risk assessment: This involves assessing the likelihood and potential impact of each identified risk.
- Risk response: This involves developing strategies for responding to each identified risk, including avoidance, reduction, transfer, or acceptance.
- Control activities: This involves implementing specific policies and procedures to reduce the likelihood and impact of identified risks.
- Information and communication: This involves ensuring that relevant information about risks and risk management is communicated throughout the organization.
- Monitoring: This involves ongoing monitoring and review of the organization's risk management processes to ensure that they are effective and that risks are being managed appropriately.
The COSO-ERM framework provides a flexible and scalable approach to risk management that can be adapted to meet the needs of organizations of all sizes and industries. By using this framework, organizations can develop a comprehensive and integrated approach to risk management that helps to protect the organization's assets and achieve its business objectives.
Who invented COSO ERM
The COSO ERM (Enterprise Risk Management) framework was developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO is a joint initiative of five professional accounting organizations, including the American Institute of Certified Public Accountants (AICPA), and was created in response to a series of financial scandals in the 1980s and 1990s.
The original COSO framework was developed in 1992 to provide guidance on internal controls for financial reporting. In 2004, COSO released an updated version of the framework, which included a broader focus on enterprise risk management. The COSO ERM framework provides a comprehensive approach to identifying, assessing, and managing risks across an organization and has become a widely recognized and adopted framework for risk management in many industries.
