Be it resolved that .. COSO ERM’s benefits outweigh its complexity and flaws March 31, 2019 Con Side ● ● COSO ERM does not mention stakeholders, ● Perhaps that is the reason why the causes of most especially external ones as well as their influence risks that are currently experienced are a result of and objectives regarding the types and the incompatibility between the objectives of the significance of the risks. organization and its The critical exclusion of stakeholders implies that an organization will effectively insulate itself from both the objectives of the stakeholders as well as from the external opinion. Con Side ● ● Throughout COSO ERM, �risk likelihood’ This is contrary to the fact that risks don’t occur concept is used, when in a real sense the term when events occur; risks only �exist’ whenever risk fails to have a likelihood. people make objectives. In the COSO document also, the level of risk is described to be measured by attributes that include Likelihood. ● ● This creates a philosophical trap that can cause the gullible to see a risk as an event causing them to use unwarranted phrases such “when the risk occurs”. ● That means that in the absence of objectives, then there are no risks. In such a case, the level of risk is defined based on the impacts or results and how possible they are. Con Side ● ● In COSO ERM, response to risk is about ● But, the COSOS document fails to advocate for minimizing the probability and severity of losses taking risks that have valuable results since one despite the fact that there are some concessions becomes confident of tolerating or treating any to what are referred to as �opportunities. potential downsides which is, at the end, the This shows that the idea behind the COSO document is not established enough to explain and appreciate that risk is just the consequence of uncertainty in what one plans out to accomplish and that results can be either beneficial, unfavorable or both. source of enterprise; that is, the undertaking of risk for return. Con Side ● ● COSO document fails to explain the use of The problem is however clearly contained with theoretical or artificial state where no controls the use of the Potential Exposure (inherent exists consequences) value that does not require any It also fails to do so when justifying tolerating contemplation of probability.” the current level of risk involved in modifying or doing something ● ● This is a negative consequence since it is very important to be conversant with the possible worse case consequences in case of failure in the existing controls in risk analysis Con Side ● COSO ERM’s risk tolerance area is conducted in a naïve and mechanistic way. ● The board therefore misses out on internalizing about the risks at the expense of consequences ● The loss sustained over time is rendered ineligible due to COSO ERM’s focus on consequences as opposed to measuring risk. ● In overall, the pronouncements by the COSO ERM board finally becomes vague as opposed to being real References ● Wang, T. S., Lin, Y. M., Werner, E. M., & Chang, H. (2018). The relationship between external financing activities and earnings management: Evidence from enterprise risk management. International Review of Economics & Finance, 58, 312-329. ● Williamson, D. (2007). The COSO ERM framework: a critique from systems theory of management control. International Journal of Risk Assessment and Management, 7(8), 1089-1119. 
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