SCS – Aug 2022 – L3 – Q8 – Controlling Risk

Explain the ISO 31000 risk management framework and the OECD principles relevant to Bazar's governance concerns.

Question

The Director of Finance and Operations, Mrs. Emma Owusu-Kwakye, is concerned about the lack of a “standardised risk management system” and “good corporate governance” at Bazar. Following Continuous Professional Development (CPD) training organised recently by the Institute of Chartered Accountants, Ghana (ICAG), on this subject and attended by you as a member of the Finance Team, duly paid for from Bazar’s training budget:

Required:
You have been asked by management to brief your finance team members on the following:

i) The International Standardisation for Organisation (ISO 31000) framework for risk management using the three (3) main elements. (5 marks)
ii) TWO (2) out of the Six OECD principles of Corporate Governance. (5 marks)

Answer

i) ISO 31000 Risk Management Framework:

ISO 31000 provides a framework for risk management that consists of three main elements:

Risk Architecture:
This element defines the roles and responsibilities for risk management within the organization and the structure for risk reporting. At Bazar, this would involve clarifying the responsibilities of the board, audit committee, group risk management committee, CEO, business unit managers, risk managers, and internal auditors to ensure an effective risk management structure is in place.
Risk Strategy:
The risk strategy outlines the organization’s risk appetite and the resources allocated for risk management. At Bazar, this would involve defining how risks are identified, assessed, and managed, and ensuring that resources are in place to support these activities throughout the company’s operations.
Risk Protocols:
These are the rules, procedures, and methodologies for risk management, including risk assessment, incident reporting, and responses to identified risks. Bazar should implement standardized procedures to ensure risks are managed consistently across all locations. This includes setting up a business continuity plan and ensuring regular auditing of control measures.

(5 marks)

ii) OECD Principles of Corporate Governance:

Ensuring the Basis for an Effective Corporate Governance Framework:
The corporate governance framework should promote transparent and fair markets and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement. For Bazar, ensuring a clear governance structure will help maintain transparency and operational efficiency.
Disclosure and Transparency:
The governance framework should ensure timely and accurate disclosure of material matters, including the company’s financial performance, ownership structure, and governance. For Bazar, this principle emphasizes the importance of providing clear, accurate information to shareholders and stakeholders about the company’s financial health and governance practices.

(5 marks)

Tags: Corporate Governance, ISO 31000, OECD principles, Risk Management
Level: Level 3

Topic: Controlling Risk
Series: AUG 2022

Uploader: Theophilus