IFAC policy paper on governance, risk management, and internal control

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17 Dec, 2012

The International Federation of Accountants (IFAC) has issued Policy Position Paper 7, 'Effective Governance, Risk Management, and Internal Control', to highlight good practice and the role of professional accountants in business.

The paper notes that IFAC believes that establishing an integrated and effective system of governance, risk management, and internal control is desirable for all types of organisations and can make an invaluable contribution to achieving sustained organisational success.

This need is explained in light of the global financial crisis (including the sovereign debt crisis) where the failure of both public and private sector organisations had many adverse consequences, including loss of value (social, financial and environmental), reduced services and stakeholder returns, increasing unemployment and in some cases, civil unrest.

Accordingly, the paper acknowledges the importance of governance, risk management, and internal control to successful and sustainable organisations, and provides various recommendations in meeting these objectives.

In relation to reporting, the paper notes the following:

IFAC believes that organizations should be transparent in reporting on the structure and performance of their governance, risk management, and internal control arrangements in their various reports to internal and external stakeholders. This can be achieved through periodic accountability reports or a description on the organization’s website. Organizations should report not only on the existence of an integrated management system, but also on major risks the organization faces, the controls it has established, how internal control is monitored and evaluated, how the system works, and what has been done to remediate any control failures or weaknesses. A better understanding of how an organization manages its risks creates trust and provides reassurance to its stakeholders.

As such, the paper shares much with calls for sustainability and integrated reporting.

Click for IFAC press release (link to IFAC website).

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