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It’s been nearly five years since the global financial meltdown of 2008, yet we’re still feeling the after effects. Since that time, many people have pointed to reckless risk-taking as the culprit for the state of today’s business markets. The simple truth is that risk is an everyday part of business. In light of the financial system collapse however, today’s senior executives and managers are facing increased scrutiny in regards to their risk governance practices.
The good news is, the responsibility of managing risk no longer rests exclusively on management’s shoulders. All trends point to involving the board as an authoritative party in assessing risk strategies, leaving them equally culpable and responsible.
This pressure is coming from the top down, with new and constantly evolving regulatory developments regarding risk management. In 2010, both the U.K. and the U.S. introduced new rules that require public companies and large financial institutions to increase the role of the board or establish an independent risk committee to oversee enterprise-wide risk management practices.
In Canada, the Canadian Securities Administrators has put forward guidelines that put the onus on boards to approve a strategic risk management plan and create appropriate systems to mitigate principal risks. More recently, in January 2013, the Office of the Superintendent of Financial Institutions released a revised version of its Guideline on Corporate Governance for federally regulated banks, trust companies and credit unions. In it, they’ve charged the board with establishing sufficient internal and external resources to oversee risk.
The increased focus on risk has quickly spread beyond the financial industry. In May 2012, Imagine Canada launched a new standards program to strengthen public confidence in the charitable and not-for-profit sector. Risk management was a key area of focus, requiring organizations to develop a process to identify and mitigate major risks, and have the board conduct an annual review of that plan.
The message throughout the business world is clear: with even the smallest not-for-profit evaluating their risk practices, effective enterprise risk management (ERM) and board risk oversight is no longer an option – it’s a necessity.
Over the coming weeks, we’ll be taking you through a series of posts related to ERM. We’ll take a closer look at the competitive advantages and industry trends related to ERM, the pillars of a successful risk management strategy and assessing the effectiveness of your risk controls.
Related Topics:Corporate Governance; Board
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