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The Use of a System of Internal Controls to Manage Ethics Risks - Essay Example

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The paper "The Use of a System of Internal Controls to Manage Ethics Risks" states that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework advocates the use of a system of internal controls to manage ethics risks within a company. …
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The Use of a System of Internal Controls to Manage Ethics Risks
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Handling the obstacles and balancing the risks with the company growth and return goals to avoid facing challenges from uncertainty, “Enterprise “ (2004) outlines internal environment, objective setting, event identification, risk assessment, information and communication, risk response, control activities, and monitoring as the eight principal factors warranting attention in that order:
(1) ERM helps the company to prevent risk by creating a good environment within the firm. The risk will be identified by including risk management philosophy, risk appetite, and integrity and will be monitored by the firm’s people. (2) Management should set up the objectives before identifying the risk to ensure that it aligns with the company’s mission and risk appetite is appropriately factored in. (3) A company should identify both internal and external events that have an impact on its success and distinguish between risks and opportunities. (4) A company can deal with and respond to the risks effectively by setting up and implementing policies and procedures. (5) The company should identify, capture, and communicate the relevant information across the organization in a suitable format and timeframe so that its workforce has total clarity and are accountable for their duties. (6) Management can decide on a set of actions to respond to risks by avoiding, accepting, reducing, or sharing risk along the company’s risk tolerances guideline and risk appetite. (7) To manage the risks, the company should analyze the likelihood and impact of them and evaluate them on an inherent and a residual basis. (8) Dynamically monitoring the whole process of activities by independent evaluations, and modifying some points when necessary represents the ultimate flexibility of ERM, rendering it complete and effective.
While abiding by the laws and regulations, ERM helps companies to present more accurate reports, and prevent damage to their reputation and related negative outcomes as well. ERM has been more widely accepted by companies and organizations because its principles and concepts can fulfill their needs, reduce organizational and ethical risks, avoid pitfalls and help management to accomplish companies’ goals (“Enterprise“, 2004).

The integrated framework of ERM and its guidelines help companies to manage their risks including ethical risks and enhance the effectiveness of the internal control system for achieving their goals. In tune with the belief of COSO that ERM can provide more robust and effective internal controls to corporations, it can also improve corporate governance to make it more effective. Read More
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