Final answer:
COSO's enterprise risk management (ERM) framework emphasizes strategy integration, objective-setting, event identification, risk assessment, risk response, control activities, information and communication, and continuous monitoring as its fundamental concepts.
Step-by-step explanation:
According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the fundamental concepts emphasized in its definition of enterprise risk management (ERM) include several key aspects:
- Strategy—ERM is integrated with the company's strategy-setting process.
- Objective-setting—ERM ensures that management has in place a process to set objectives and that the chosen objectives support and align with the organization's mission and are consistent with its risk appetite.
- Event Identification—Recognizing internal and external events that might affect the achievement of the organization's objectives, and distinguish between risks and opportunities.
- Risk Assessment—ERM requires the organization to assess risks, considering the likelihood and impact of those risks in a way that manages them within its risk appetite.
- Risk Response—The organization must decide on how to respond to risks with a view to aligning with their risk tolerance and appetite.
- Control Activities—The policies and procedures to ensure risk responses are effectively carried out.
- Information and Communication—Relevant information must be identified, captured, and communicated in a timely manner.
- Monitoring—The entire ERM process is continuously monitored, and modifications are made as necessary.
These fundamental concepts form the basis of how ERM is structured and operates within an organization, aiming at identifying, assessing, and preparing for potential risks that can affect the company's ability to reach its goals.