What does senior management need to do in order to fulfil its obligations regarding risk management? Read this helpful article to find out.
Senior management plays a leading role in an Enterprise Risk Management (ERM) program and must ensure the Board’s risk appetite and policies have been adhered to.
Senior management is in charge of implementing policies and procedures that identify, assess, monitor, manage, and correct a risk in their own specific areas. Senior management is responsible for reporting to the Board on the efficacy of the risk appetite relative to the implementation of the strategic plan – any disconnect must be addressed.
Senior management sets the tone and standard for adhering to the risk it has been delegated by the Board; it sets the tax function’s objectives.
These may be to minimise effective tax rates, reduce cash taxes, find opportunities offshore, lobby on behalf of the industry for a particular tax concession, avoid all possible things that would (if publicly known) embarrass the company, etc.
In addition, tax needs to look internally and contain/reduce operational risk within the tax function and across functional areas (How do decisions made in other departments impact tax and vice versa?).
Management is responsible for implementing policies and procedures that are the core of the ERM. This means establishing a framework for the tax function in which risk decisions can be executed. The framework needs to be workable – simple enough to be understood but with sufficient parameters to offer concrete support in the decision-making process.
The framework needs to contain:
- An estimate of the probability of each current and future risk,
- The range (spread) of the probability occurring, and
- The dollar impact associated with each range.
Then layer on a requirement to always evaluate a more esoteric factor of reputational risk.
(With excerpts from the book, Tax Risk in the 21st Century: How to Manage Tax Risk like a Big Company Without the Big Expense by Ana Sainz of Claret Partners)
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