Enterprise Risk Management (ERM) includes methods and processes that should be adopted by any organisation not merely to mitigate risk, but to promote and support effective risk management to add value within an organisation. Accountants should become the risk experts in managing risk in line with the organisation’s objectives.
A Risk Management Challenge for the Profession
A 2017 survey of IFAC member organizations on managing risk implied that:
- Accountants do manage to get the required risk management knowledge and skills from their preliminary professional training.
- ERM is not always viewed as a fundamental expertise for professional accountants.
From Mitigating Risk to Managing Uncertainty
ERM must be viewed as preventative approach rather than a reactive one where it involves getting a good grasp of the past, present and future possibilities. It requires the identification, assessment, and treatment of uncertainty and the risks/opportunities that are brought about into a way that correspond to the organisation’s goals.
The CFO and Finance Function Role in Risk Management
The involvement of the CFO and the finance function role in relation to risk management is expanding merely because such uncertainties and complexities present in the business environment must be addressed by top level management.
The traditional involvement of CFOs in risk management include:
- Supervising financial and compliance risks
- Evaluating opportunities and risks and present them to the board
- Guiding the overall organisation risk culture
Moreover, the professional accountant’s role involves:
- Financial and non-financial propositions of potential investment opportunities and alternative courses of actions
- Forecasting and including key variables (such as risk) whilst developing different scenarios of a project.
- Recognising and classifying risks through sensitivity testing and scenario modelling.
- Independent directors – participating in audit committees paying attention on risks around financial reporting
- Internal audit – deliver assurance to the board on the effectiveness of risk management
- Treasury – evaluate and manage risks and rewards relating to financial risk, foreign exchange, commodity price, interest rate and liquidity risk.
Recommendations for CFOs and Finance Functions
For CFOs and finance functions to play a more innovative and principal role in risk management, they must consider enhancing their input to ERM in three crucial ways:
- Relating risk management to value creation and preservation
- Driving insights and enabling decisions
- Enabling integration and interconnectivity
Recommendations for the Professional Accountant Skillset
Our team can support your finance people develop the above skillset through dedicated training, devise and implement transformation plans putting risk management a constant high on the agenda. Please feel free to contact us.
