The creation of COSO ERM Framework and the ISO 3100 updates have completely overwhelmed companies that incorporate more than one enterprise risk management method to meet compliance standards.
Nevertheless, in spite of the many definitions and procedures for creating risk tolerance, COSO ERM Framework and ISO 3100 feature tools to help businesses manage their risks better.
The difference between COSO ERM Framework and ISO 3100
COSO was established in 1985 by five associations to endorse the National Commission on Fraudulent Financial Reporting.
These five organizations include the Institute of Management Accountants (IMA), Financial Executives International (FEI), The American Accounting Organization (AAA), and The American Institute of Certified Public Accountants.
These associations came together to create frameworks and rules that guide enterprise risk management, fraud deterrence, and internal control.
ISO was formed in 1946 by 25 countries' delegates who formed a body that would ensure accepted industrial standards at the Institute of Civil Engineers in London.
The Frameworks for COSO were updated in 2016. The frameworks are designed to help companies approach internal controls with applied risk management strategies. The Framework features five important points. They include:
Governance and Culture: This aspect of COSO focuses on daily activities using the enterprise risk management (ERM).
Strategy and Objective Setting: This concept states that risk tolerance must be measured objectively.
The performance: This guideline states that risks have to be prioritized and then reported.
The Review and Revision: This aspect deals with continuous internal audit and monitoring to adjust controls as dimmed fit.
Information, Communication, and Reporting: This one states that there must be effective communication among stakeholders.
ISO 31000 standard
The ISO 3100 was re-launched in 2018. The new standards are aimed at streamlining various definitions. The new standards focus on 11 crucial principles.
31000 recognize the fact that risk management creates and sustains value. Also, companies need to use ERM as part of business processes. With that in mind, organizations need to consider risk when making company decisions. This is important when it comes to addressing uncertainty.
Notably, for ERM to work effectively there needs to be a well-structured, systematic, and timely process. Furthermore, risk management depends on the best data available. Therefore, companies need to customize their ERM to match their risks.
To customize the risks, they need to consider both cultural and human factors to make sure they cater for stakeholder needs.
With such a move, companies can ensure transparency when carrying out risk management. Note that effective risk management only means organizations are able to respond to various iterative and dynamic processes. Lastly, ERM helps companies improve not only their risk but also compliance.
Why ISO 31000 is important to IT professionals
ISO 31000 is meant to offer risk guidelines for industries. However, you should know that it is not tailored to IT alone but also ISO's desired outcomes.
IT experts often use 27001 to improve their ISMS. 27001 borrow much of its features from 9000, which apes most of its principles from ISO 31000.
Companies require a managed framework to protect data when establishing ISMS. The framework also protects procedures, policies, physical and technical controls. Before embarking on creating these controls, companies need to carry out risk management assessments to review threats and potential risks. The assessment depends on standards.
Similarities between COSO Framework and ISO 31000
Both of these disciplines focus on determining risks, monitoring, treating risks and monitoring the risks on a regular basis.
The main similarity between the two frameworks is their ability to review and adjust risks since threats keep on evolving. As far as information security is concerned, attackers often come up with new ways to attack the systems.
The main differences between COSO ERM and ISO 31000 framework
COSO's main focus is financial reporting. Although this may seem like a negligible deviation, it actually creates a different focus.
For ISO 31000, it starts with defining the purpose of risk management and its spread. The risk processes involve identifying risks, designing risk criteria, and decision making. Even though the framework focuses on leadership commitment, it usually focuses on determining risk tolerance before considering business concerns.
How Board of Directors can use ISO 31000 and COSO ERM Framework to oversee risk
Board of Directors is required to oversee risks that may occur during business operations. Both ISO 31000 and COSO insist on the importance of management in making the decision. Therefore, the seniors in the company must know the risks that may affect the company and how to cease such risks to achieve business goals.
With automated software documentation aggregation and reporting becomes easy and also shares an organization's trends. Note that compliance is expensive both in time and money. Compliance software helps to reduce the time spent to manage compliance by helping business leaders to track tasks and make change.
Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that.
He has propelled Reciprocity's success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT.