Final answer:
The COSO ERM framework does not include 'having predominantly independent directors on the board' as an element of an organization's internal environment; instead, it focuses on setting organizational objectives, establishing risk appetite, and assigning authority and responsibility. Option d) having predominantly independent directors on the board is the correct answer.
Step-by-step explanation:
According to COSO ERM (the Committee of Sponsoring Organizations of the Treadway Commission's Enterprise Risk Management), all of the following are elements of an organization's internal environment except having predominantly independent directors on the board. The internal environment sets the basis for how strategy and objectives are formulated, how business is conducted, and how risks are managed. It includes:
- Setting organizational objectives - aligns with the mission and vision, providing direction and focus.
- Establishing risk appetite - defines the amount of risk the organization is willing to accept in pursuit of its objectives.
- Assigning authority and responsibility - helps in implementing the risk strategy by clearly stating who is responsible for what actions.
The characteristic 'having predominantly independent directors on the board' is not an element of the internal environment per COSO ERM, rather it is a feature related to governance that supports objective and balanced decision-making but is not defined within the internal environment components.