The financial crisis clearly demonstrated that as economies and markets become increasingly globalised, the issues that arise in those economies and markets also need to be considered in a global context, particularly when it comes to risk. Strong risk management and internal control systems are crucial to strengthening the governance of organisations.
In 2010, the IFAC Professional Accountants in Business (PAIB) Committee, in conjunction with the Committee of Sponsoring Organizations of the Treadway Commission (COSO), launched a survey to investigate what needs to be done to strengthen risk management and internal control practices globally.
The objectives of the survey were to:
According to respondents, the drive to integrate risk management and internal control systems is gaining momentum, but the guidance to develop and implement a genuinely integrated system do not really exist. Risk management guidelines are often separate from internal control guidelines. Integrating these guidelines would help to increase the general understanding that both risk management and internal control are integral parts of an effective governance system. Respondents also believe that risk management and internal control requirements and guidelines should be further aligned internationally. The global economy is now largely composed of very interdependent national economies and markets. Hence, corporate governance, risk management, and internal control requirements and guidelines should be harmonised globally. As many organisations have international activities, further international alignment would benefit their operations and compliance processes, reducing costs and allowing for the comparison of these systems across borders, thus, increasing investor confidence.
Respondents are of the view that the limitations of existing guidelines, and the international alignment of risk management and internal control guidelines, have not been discussed adequately at the national or international level.
Respondents recommend that national and international standard-setting bodies and professional associations, as well as the relevant regulators, collaborate to (a) determine the major similarities and differences between existing guidelines, (b) compile leading risk management and internal control practices, and (c) consider the benefits of further integration and international alignment of regulations and guidelines in the area of governance, risk management, and internal control. They should consult industry representatives, as well as other stakeholders, to better understand the risk management and internal control processes and impacts from an implementation perspective.
Respondents would like to see these discussions lead to the establishment of an international, integrated framework that brings together the overall principles or commonalities with respect to risk management and internal control. To further international alignment, existing national guidelines could be expanded or modified—with allowances made for specific national circumstances—to meet the principles of an international framework.
Further international alignment is an ambitious and challenging goal, but the potential benefits are large. It’s up to all those responsible for developing, implementing, using, and enforcing requirements and guidelines on risk management and internal control to work together to produce a globally recognised and accepted international framework that is relevant to all. IFAC looks forward to contributing to this collaborative effort.
The complete survey results and analysis are available on the IFAC website. IFAC welcomes your comments. Please send ideas and suggestions for further IFAC activities in this area to VincentTophoff@ifac.org.