Life is filled with risks, some risks seemingly more miniscule than others. Other risks seemingly more threatening than previous ones. No matter what, we face risks every day in our lives. Whether we take the train to work, eat at a new local restaurant, drive home from work during traffic hour. Everything thing we get ourselves into, there are risks to follow. Who knows whether or not your train will be delayed due to a blown out traffic signal. Who knows whether or not the local restaurant is worth the price they promote themselves to be. Who knows whether or not you make a mistake changing lanes, and you, or another patron hits their cars into yours or vice versa. Life is full of risks, but at least with business risks, we follow practices known as Risk Assessments to help us reach our goals and objectives in a less risky fashion.
Risk Assessment helps organizations manage risks which helps businesses make better decisions. Risk assessments are the ability to identify, monitor, analyze, and manage relevant risks of the goals and objects your company faces. The ability to identify and analyze risk through risk assessments help create a basis for risk management. For the record, any form of risk assessment is better than no risk assessment at all. So gather your team and analyze and identify the risks your company or team may be facing almost invariably.
The RCM (Risk Control Method) is a risk assessment tool used to help identify risks between objectives and controls.
Internal control risks are risks that affect the effectiveness of internal controls and thus affect the achievement of objectives. Effective internal control risks have the ability to minimize any risks that can affect achievement of the objectives. They are part of the operation risk and compliance risk. Operation risk involve an unexpected failure in organizations daily operations, where compliance risks are risks that do not maintain the regulations of the law, such as SOX (Sarbanes-Oxley Act). If corporations lack control in their internal controls over their financial reporting, those corporations will face a seriously hard task to minimize compliance risk.
Some RCM components for Internal risk assessments that you need to know include:
- Objectives – Know your goals and objectives, and work to minimize the risk via risk assessment of these goals and objects.
- Control Activities – Control activities refers to internal controls. Minimize risks in the actions meet to achieve the predetermined objective and goals.
- Risks – If internal control activities do not meet to achieve company’s goals and objectives, then you have risks that need dire risk assessment.
- Process Owner – A crucial part in the RCM component. A Process Owner is a person, or a group, that hold accountability of a control activity. Process Owners are the individuals responsible to complete control activities with quality.
- Financial Statement Assertion – Financial reporting assertion should be identified by each internal control manager. Some financial reporting assertions include completeness, existence and occurrence, rights and obligations, valuation or allocation, and/or presentation and disclosure. The financial statement assertion built by each control manager will provide enough evidence to prove and explain internal controls are in place of all relevant financial reporting for all significant accounts and disclosure.
- Preventive or Detective – Preventive control are designs to keep errors or irregularities from occurring. Detective controls are designed to detect errors or irregularities that may have occurred.
- Key or Non-key – This component explains that management’s determination in reaching the objective with reducing the risk of the control activity is a key control.
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The component of the RCM you will find, is a valued tool to determine good risk assessments between objectives and controls. The more validated your risk assessment, the more likely you can create a better path to achieve your objective.
