Question

Which group is charged with overseeing the establishment, administration, and evaluation of the processes of risk management and control?

1) Risk Management Committee
2) Audit Committee
3) Board of Directors
4) Executive Management

Answer 1

The Board of Directors(3) is chiefly responsible for overseeing risk management and control processes within a company. They are supported by the Audit Committee and external parties such as auditing firms and large shareholders. Ineffective corporate governance can lead to situations like the failure of Lehman Brothers.

Step-by-step explanation:

The group charged with overseeing the establishment, administration, and evaluation of the processes of risk management and control is primarily the Board of Directors(3). This body, elected by the shareholders, provides the first line of corporate governance and oversight for the company. Not only do they oversee the executive management, but they are also responsible for ensuring that proper risk management and control processes are in place and functioning appropriately. When corporate governance is ineffective, as was seen with Lehman Brothers, shareholders and the market can be misled, causing drastic consequences.

In addition to the Board of Directors, the Audit Committee, a subset of the board, often plays a significant role in overseeing the financial reporting processes and internal controls. Moreover, the auditing firm is another institution that reviews the company's financial records to certify accuracy. External institutions like large shareholders, mutual funds, and pension funds also play a part in corporate governance by exerting influence and seeking transparency.