1.7.3 Risk Management
( Abdul Rasid, Golshan, Ismail & Ahmad, 2012) defined risk management, it involves managing to achieve a proper balance between realizing opportunities for gains while minimizing losses. As this definition implies, risk management is an integral part of a good management practice and an essential element of excellent corporate governance. Risk management is a repetitive process that constitutes steps that when performed; it facilitates improved decision-making and performance. These steps include identifying, analyzing, evaluating, treating, monitoring and communicating risks. This process enables organizations to maximize the gains and minimize the losses (COSO, 2004). According to (Pagach & Warr, 2011), the primary …show more content…
According to(Epetimehin, 2013) , ERM is different from the traditional risk management in four aspects. Firstly, ERM should be present within overall governance structure of a firm. Secondly, ERM does not substitute traditional risk management rather it complements it. This implies that traditional risk management should be in place, especially in business units and ERM should be used at corporate level to manage the overall risks the company is facing. Thirdly, the necessity of presence of a risk champion, usually in the role of chief risk officer (CRO). Traditionally chief financial officers (CFOs) were responsible for managing the risks the firm faces, surprising that CFOs were considered the primary “risk owners” in the majority of organizations. Some argue that this risk ownership responsibility is appropriate due to finance’s existing expertise in risk management, the importance of internal controls and regulatory reporting compliance, and the CFO’s expansive financial perspective, which is needed to holistically monitor the economic impact of risk and manage the risk-based planning and resource allocation process. A growing number of ERM advocates argue that placing primary responsibility for risk management in the hands of the CFO biases the risk management process towards financial risks, leads to conflicts of interest between the finance’s dual roles in both managing and monitoring risk-taking, and hinders the adoption of holistic risk management practices by fostering disagreements between the priorities of the CFO and the priorities of other functions. Instead, these advocates call for risk ownership to be transferred from CFOs to newly created Chief Risk Officer Positions, a troubling movement for the accounting profession (Green, 2010). Finally, ERM
( Abdul Rasid, Golshan, Ismail & Ahmad, 2012) defined risk management, it involves managing to achieve a proper balance between realizing opportunities for gains while minimizing losses. As this definition implies, risk management is an integral part of a good management practice and an essential element of excellent corporate governance. Risk management is a repetitive process that constitutes steps that when performed; it facilitates improved decision-making and performance. These steps include identifying, analyzing, evaluating, treating, monitoring and communicating risks. This process enables organizations to maximize the gains and minimize the losses (COSO, 2004). According to (Pagach & Warr, 2011), the primary …show more content…
According to(Epetimehin, 2013) , ERM is different from the traditional risk management in four aspects. Firstly, ERM should be present within overall governance structure of a firm. Secondly, ERM does not substitute traditional risk management rather it complements it. This implies that traditional risk management should be in place, especially in business units and ERM should be used at corporate level to manage the overall risks the company is facing. Thirdly, the necessity of presence of a risk champion, usually in the role of chief risk officer (CRO). Traditionally chief financial officers (CFOs) were responsible for managing the risks the firm faces, surprising that CFOs were considered the primary “risk owners” in the majority of organizations. Some argue that this risk ownership responsibility is appropriate due to finance’s existing expertise in risk management, the importance of internal controls and regulatory reporting compliance, and the CFO’s expansive financial perspective, which is needed to holistically monitor the economic impact of risk and manage the risk-based planning and resource allocation process. A growing number of ERM advocates argue that placing primary responsibility for risk management in the hands of the CFO biases the risk management process towards financial risks, leads to conflicts of interest between the finance’s dual roles in both managing and monitoring risk-taking, and hinders the adoption of holistic risk management practices by fostering disagreements between the priorities of the CFO and the priorities of other functions. Instead, these advocates call for risk ownership to be transferred from CFOs to newly created Chief Risk Officer Positions, a troubling movement for the accounting profession (Green, 2010). Finally, ERM