COSO Risk Assessment Process: A Practical Guide
A practical guide to the COSO risk assessment process, covering objectives, risk identification, fraud risk, analysis, prioritization, responses, change, documentation, and integration with internal controls.
Key Takeaways
- ✓Begin risk assessment with clear objectives.
- ✓Identify internal, external, and emerging risks.
- ✓Consider fraud risk explicitly.
- ✓Analyze and prioritize risks using methods appropriate to the organization.
- ✓Align risk responses with objectives and risk appetite.
- ✓Reassess significant changes and connect results to internal controls.
COSO Risk Assessment Process: A Practical Guide
The COSO risk assessment process helps organizations identify and analyze risks that could affect the achievement of objectives and determine how those risks should be addressed. It connects objectives, risk identification, risk analysis, and response so management can make informed decisions.
1. Start with clear objectives
Risk assessment begins with objectives. Management should define what the organization, business unit, process, or activity is expected to achieve. Objectives should be sufficiently clear to support the identification and analysis of risks.
Consider objectives across operations, reporting, and compliance.
2. Identify risks
Risk identification asks what could prevent the organization from achieving its objectives. Risks may originate inside or outside the organization and can arise from strategic, operational, financial, reporting, compliance, technology, people, third-party, or other factors.
A useful risk statement identifies the event or condition, its cause or source, the objective affected, and the potential consequence.
Risk identification should consider existing and emerging conditions rather than relying only on historical incidents.
3. Consider fraud risk
Fraud risk is an explicit consideration within the COSO risk assessment process. The assessment should consider how fraud could affect objectives, including fraudulent reporting, misappropriation of assets, corruption, and management override.
Useful questions include where incentives or pressures could create fraud risk, what opportunities could enable fraud, how management could override controls, and what changes in people, processes, systems, or third parties could alter fraud exposure.
4. Analyze identified risks
Related topics
Frequently asked questions
What is the COSO risk assessment process?
It is the process of identifying and analyzing risks that could affect objectives and determining appropriate responses.
Why does COSO start risk assessment with objectives?
Objectives establish the reference point for determining which events or conditions could prevent or alter expected results.
Does COSO risk assessment include fraud risk?
Yes. Fraud risk is an explicit consideration in assessing risks to the achievement of objectives.
Is COSO risk assessment a one-time activity?
No. Organizations should reassess risks when significant changes could affect objectives or the internal control system.
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