Enterprise Risk Management, 2nd Edition

CHAPTER 42Financial Reporting and Disclosure Risk Management

 

SUSAN HUME

Associate Professor of Finance, School of Business, The College of New Jersey

 

There are some things you learn best in calm, and some in storm.

—Willa Sibert Cather

 

THE IMPORTANCE OF DISCLOSURE MANAGEMENT AND ERM

Enterprise risk management (ERM) is a discipline and ongoing holistic process that allows management to judge total business risk. There are diverse audiences who are interested in monitoring the firm's enterprise risks. There are the internal audiences—the board of directors (referred to as the “board”), the audit committee, executive management, and employees—and the external participants—investors, creditors, vendors, and rating agencies. The ERM process can help the firm navigate through a powerful disruption—a global health pandemic, a Category 5 weather storm, or an international financial crisis—if the appropriate quantitative modeling is in place and qualitative reasoning prevails by management.

ERM reporting and disclosure provides the forum to discuss the key vulnerabilities and risks of the firm and strengthens management accountability. It cannot provide management with good business sense, for executives need to determine what makes their business unique and establish comprehensive guidelines within which the firm operates. Transparency is important to ERM disclosure as business managers, senior managers, and the board need to track exposures and discuss these regularly. Without ...