The COSO committee continues by identifying five limits:
1. Judgement
The existence of human frailty which can affect ERM decisions subject to the conditions at the
time of decision making, including available time, information presented, and business pressures.
2. Breakdowns
There is also the possibility of breakdown of well-designed ERM programs due to misunderstood
implementation of instructions by personnel which may be due to judgement mistakes or errors
committed as a result of fatigue, distraction, or carelessness.
3. Collusion
Individuals may act together to cover the tracks of an action they carried out, and may need to
alter some financial data or management information. This may not be detectable by the ERM
process and may lead to its failure.
4. Cost versus Benefits
Due to the existence of resource constraints, it is always necessary to put cost against benefits of
decisions especially when it relates to response to risk of failure, and control activities.
5. Management Override
There is the possibility of a manager deviating from prescribed policies or procedures of ERM.
Reasons for this override may include personal gain, or to present an enhanced financially
condition of the entity, or compliance status. Effective ERM will however improve the entity‟s
prevention and detection of override activities capabilities.
42
The COSO committee continues by identifying five limits: 1. Judgement The existence of human frailty which can affect ERM decisions subject to the conditions at the time of decision making, including available time, information presented, and business pressures. 2. Breakdowns There is also the possibility of breakdown of well-designed ERM programs due to misunderstood implementation of instructions by personnel which may be due to judgement mistakes or errors committed as a result of fatigue, distraction, or carelessness.3. CollusionIndividuals may act together to cover the tracks of an action they carried out, and may need to alter some financial data or management information. This may not be detectable by the ERM process and may lead to its failure.4. Cost versus BenefitsDue to the existence of resource constraints, it is always necessary to put cost against benefits of decisions especially when it relates to response to risk of failure, and control activities.5. Management OverrideThere is the possibility of a manager deviating from prescribed policies or procedures of ERM. Reasons for this override may include personal gain, or to present an enhanced financially condition of the entity, or compliance status. Effective ERM will however improve the entity‟s prevention and detection of override activities capabilities.42
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