COSO Enterprise Risk Management

ROBERT R. MOELLER, CPA, CISA, CISSP, is an internal audit specialist and project manager with a strong understanding of business risk management, information systems, corporate governance, and security. He has over twenty-five years of experience in internal auditing, ranging from launching new internal audit functions in several companies to serving as audit director for a Fortune 50 corporation. Formerly national director of computer auditing at Grant Thornton and internal audit director at Sears Roebuck, he is the author of six books published by Wiley. He is the former president of the Institute of Internal Auditors' Chicago chapter and the former chair of the AICPA's Computer Audit Subcommittee.

Preface xi

Chapter 1: Introduction: Enterprise Risk Management Today 1

The COSO Internal Controls Framework: How Did We Get Here? 2

The COSO Internal Controls Framework 3

COSO Internal Controls: The Principal Recognized Internal Controls Standard 14

An Introduction to COSO ERM 14

Governance, Risk, and Compliance 15

Global Computer Products: Our Example Company 16

Chapter 2: Importance of Governance, Risk, and Compliance Principles 21

Road to Effective GRC Principles 22

Importance of GRC Governance 23

Risk Management Component of GRC 25

GRC and Enterprise Compliance 26

Importance of Effective GRC Practices and Principles 28

Chapter 3: Risk Management Fundamentals 31

Fundamentals: Risk Management Phases 32

Other Risk Assessment Techniques 45

Chapter 4: COSO ERM Framework 51

ERM Definitions and Objectives: A Portfolio View of Risk 51

COSO ERM Framework Model 55

Other Dimensions of the ERM Framework 86

Chapter 5: Implementing ERM in the Enterprise 89

Roles and Responsibilities of an Enterprise Risk Management Function 90

Risk Management Policies, Standards, and Strategies 100

Business, IT, and Risk Transfer Processes 105

Risk Management Reviews and Corrective Action Practices 108

ERM Communications Approaches 112

CRO and an Effective Enterprise Risk Management Function 113

Chapter 6: Importance of Strong Enterprise Governance Practices 115

History and Background of Enterprise Governance: A U.S. Perspective 116

Enterprise Integrity and Ethical Behavior 119

Disclosure and Transparency 125

Rights and Equitable Treatment of Shareholders and Key Stakeholders 126

Governance Role and Responsibilities of the Board 128

Governance as a Key Element of GRC 128

Chapter 7: Enterprise Compliance Issues Today 131

Compliance Issues Today 132

Establish a Compliance Assessment Team 133

Compliance Risk Assessments and Compliance Program Reviews 136

Work Unit–Level Compliance Tracking and Review Processes 138

Compliance-Related Procedures and Staff Education Programs 141

Enterprise Hotline Compliance and Whistleblower Support 142

Assessing the Overall Enterprise Compliance Program 144

Chapter 8: Integrating ERM with COSO Internal Controls 147

COSO Internal Controls Background and Earlier Legislation 147

Efforts Leading to the Treadway Commission 151

COSO Internal Controls Framework 156

COSO Internal Controls and COSO ERM: Compared 174

Chapter 9: Sarbanes-Oxley and Enterprise Risk Management Concerns 177

Sarbanes-Oxley Act Background 177

SOx Legislation Overview 179

Enterprise Risk Management and SOx Section 404 Reviews 193

Internal Controls Reporting and Materiality 198

PCAOB Risk-Based Auditing Standards 199

Sarbanes-Oxley: The Other Sections 200

SOx and COSO ERM 201

Chapter 10: Corporate Culture and Risk Portfolio Management 203

Whistleblower and Hotline Functions 204

Risk Portfolio Management 208

Integrated Enterprise-Wide Risk Management 211

Chapter 11: OCEG Capability Model GRC Standards 215

GRC Capability Model “Red Book” 215

Other OCEG Materials: The “Burgundy Book” 223

Level and Scope of the OCEG Standards-Setting Authority 224

Chapter 12: Importance of GRC Principles in the Board Room 225

Board Decisions and Risk Management 226

Board Organization and Governance Rules 230

Corporate Charters and the Board Committee Structure 231

Audit Committees and Managing Risks 235

Establishing a Board-Level Risk Committee 238

Audit and Risk Committee Coordination 244

COSO ERM and Corporate Governance 245

Chapter 13: Role of Internal Audit in Enterprise Risk Management 247

Internal Audit Standards for Evaluating Risk 248

COSO ERM for More Effective Internal Audit Planning 251

Risk-Based Internal Audit Findings and Recommendations 264

COSO ERM and Internal Audit 265

Chapter 14: Understanding Project Management Risks 267

Project Management Process 268

PMBOK_ Guide: A Guide to the Project Management Book of Knowledge 269

PMBOK_ Guide’s Project Manager Risk Management Approach 272

Project-Related Risks: What Can Go Wrong 282

Implementing ERM for Project Managers 285

Chapter 15: Information Technology and Enterprise Risk Management 291

IT and the COSO ERM Framework 292

IT Application Systems Risks 294

Effective IT Continuity Planning 302

Worms, Viruses, and System Network Risks 307

IT and Effective ERM Processes 309

Chapter 16: Establishing an Effective GRC Culture throughout the Enterprise 311

First Steps to Establishing a GRC Culture: An Example 312

Promoting the Concept of Enterprise Risk 314

Establishing of Enterprise-Wide Governance Awareness 319

Enterprise Codes of Conduct 323

Building a GRC Culture: Risk, Governance, and Compliance Education Programs 326

Keeping the GRC Culture Current 327

Chapter 17: ISO 31000 and 38500 Risk Management Worldwide Standards 331

ISO Standards-Setting Process 332

Understanding ISO 31000 334

ISO 38500: The Corporate Governance of IT 337

Implementing an ISO Standard 340

Chapter 18: ERM and GRC Principles Going Forward 343

ERM and GRC for the Internal Controls Professional 344

COSO’s Ongoing Support Role 347

COSO ERM and GRC Future Prospects 348

About the Author 351

Index 353