Coso and Basel
Financial Collapses and Regulations
New England College of Business
In an era of risky investments and failed financial institutions, additional importance is being placed on businesses implementing Enterprise Risk Management (ERM) plans. ERM is defined by the Institute of Internal Auditors (2012) as an approach designed to "identify, quantify, respond to, and monitor the consequences of potential events implemented by management." Without an ERM plan, transparency to shareholders and internal accountability are nearly impossible to achieve. COSO and Basel are both reactive frameworks to increased regulatory changes that forced institutions to show more transparency to their financial reporting, in order to manage operational risks, mitigate the likelihood of a collapse, and ensure stability in volatile market conditions (Farnan 2004; Balin 2008); these measures increase confidence in investors. This comparative analysis of COSO and Basel seeks to indentify common measures that are necessary to form a functional ERM plan, the most important being the accountability of management and its communication with the Board (The New Basel Accord 2003).
A Comparative Analysis of ERM Guidelines: COSO I/II and Basel I/II
Introduction
Due to the epidemic of failed financial systems seen over the past decade, agencies and private organizations (e.g., Securities and Exchange Commission, NICE, etc.) have set in place guidelines for the standardization of reporting and evaluating risk in an effort to eliminate "surprise" collapses in the future (NICE Systems Ltd. 2012). Alexander Campbell, Editor, Operational Risk & Regulation, states that "regulatory approaches are changing" and requiring companies to streamline processes for monitoring internal risks at a company, such as fraud (NICE Systems Ltd. 2012).
Common goals of organizing committees trying to tackle regulatory challenges are to improve communication between the board and management, increase
New England College of Business
In an era of risky investments and failed financial institutions, additional importance is being placed on businesses implementing Enterprise Risk Management (ERM) plans. ERM is defined by the Institute of Internal Auditors (2012) as an approach designed to "identify, quantify, respond to, and monitor the consequences of potential events implemented by management." Without an ERM plan, transparency to shareholders and internal accountability are nearly impossible to achieve. COSO and Basel are both reactive frameworks to increased regulatory changes that forced institutions to show more transparency to their financial reporting, in order to manage operational risks, mitigate the likelihood of a collapse, and ensure stability in volatile market conditions (Farnan 2004; Balin 2008); these measures increase confidence in investors. This comparative analysis of COSO and Basel seeks to indentify common measures that are necessary to form a functional ERM plan, the most important being the accountability of management and its communication with the Board (The New Basel Accord 2003).
A Comparative Analysis of ERM Guidelines: COSO I/II and Basel I/II
Introduction
Due to the epidemic of failed financial systems seen over the past decade, agencies and private organizations (e.g., Securities and Exchange Commission, NICE, etc.) have set in place guidelines for the standardization of reporting and evaluating risk in an effort to eliminate "surprise" collapses in the future (NICE Systems Ltd. 2012). Alexander Campbell, Editor, Operational Risk & Regulation, states that "regulatory approaches are changing" and requiring companies to streamline processes for monitoring internal risks at a company, such as fraud (NICE Systems Ltd. 2012).
Common goals of organizing committees trying to tackle regulatory challenges are to improve communication between the board and management, increase
References: Ahmed, R., & Khalidi, M. (2007). From Basel I to Basel II. Market Forces, 3(3). Retrieved from http://www.pafkiet.edu.pk/LinkClick.aspx?fileticket=vQdTSxc8g6Q%3D&tabid=160&mid=1556 Balin, B Bressac, A. (2005, November 25). Transition from COSO I to COSO II. European Commission. Retrieved July 6, 2012, from http://ec.europa.eu/dgs/internal_audit/pdf/conference_2005/bressac.pdf Coy, P Farnan, D. (2004, September 23). Implementation Issues of Sarbanes-Oxley. CASE. Retrieved July 11, 2012, from http://gatton.uky.edu/FACULTY/PAYNE/ACC324/Sarbanes.Oxley.pdf Institute of Internal Auditors (IIA) (2012) Kaufman, G. (2003, October 3). BASEL II: THE ROAR THAT MOUSED. Federal Reserve. Retrieved July 12, 2012, from http://www.federalreserve.gov/SECRS/2003/November/20031105/R-1154/R-1154_3_1.pdf Lall, R Samad-Khan, A. (2005, January). Why COSO is flawed. Operational Risk Advisory. Retrieved July 15, 2012, from http://www.opriskadvisory.com/docs/Why_COSO_is_flawed_(Jan_2005).pdf Saurina, J., & Persaud, A Shaw, H. (2006, March 15). The Trouble with COSO. CFO Magazine. Retrieved July 6, 2012, from http://www.cfo.com/article.cfm/5598405 The New Basel Capital Accord (2003, April) Welcome to COSO. (2012). COSO. Retrieved July 8, 2012, from http://www.coso.org/default.htm