Risk Assessment Process: A risk assessment process is essential for identifying, analyzing, and managing risks that could prevent the achievement of objectives. It is a critical component in developing an effective system of internal controls.
Importance: Without a risk assessment, organizations cannot effectively design controls that address relevant risks.
COSO Framework: The Committee of Sponsoring Organizations (COSO) Internal Control Framework outlines risk assessment as a fundamental part of internal control systems.
Components: The framework includes risk assessment, control activities, information and communication, monitoring activities, and the control environment.
Other Preconditions:
Monitoring Process: Important for evaluating the effectiveness of internal controls but not the initial step.
Strategic Objective-Setting Process: Critical for overall organizational success but does not directly develop internal controls.
Information and Communication Process: Supports internal controls by ensuring relevant information is communicated but follows the identification of risks.
COSO Internal Control Framework.
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