For years, regulators have emphasized the significance of comprehensive risk assessment as the cornerstone of maintaining an effective compliance program across all business industries. Similarly, accounting professionals should apply this concept when it comes to financial reporting and determining the effectiveness of internal controls over financial reporting.
Recently, the SEC Chief Accountant has warned about the inevitability of material risks going unaddressed and undisclosed if comprehensive risk assessment processes are not in place. Such negligence could diminish the quality of financial information and potentially create a ripple effect across a corporation’s financial health.
The warning signifies a call to action for corporation’s accounting departments and legal teams to ensure their risk assessment processes are up-to-date and comprehensive. Not only does this task make financial sense—it’s also a regulatory necessity.
According to SEC’s Chief Accountant, Sagar Teotia, corporations must take the extra stride to adopt practices that will enable them to detect, measure, and manage the risks they face in a timely manner. They should keep up with the increasingly complicated financial markets and proliferating regulations, especially with rapid technological changes and unexpected shifts that can massively impact industry landscapes.
While this finding might not be groundbreaking, it’s a stark reminder to corporations about regulators’ ever-presence and their demand for companies to improve risk management systems continually. This sentiment becomes more critical in an era where financial technology innovations can disrupt traditional financial markets, potentially exposing corporations to new and complex risks.
The bottom line is: corporations should conduct comprehensive risk assessments to ascertain their respective risks and to implement effective compliance programs. They shouldn’t wait for the moment when they are compelled by regulators because adhering to new rules is much less hassle than fixing compliance failures.
For a comprehensive guide on managing risks and maintaining authorities’ compliance, refer to this article available at JDSupra.