Every organization faces daily pressure that includes assessing finance, managing cash flow and mitigating global megatrends such as sustainability, technology and globalized supply chains. The risk management process has never been more challenging for businesses.
Organizations rely on skilled accountants to oversee and manage their internal controls and risk management process. Along with drafting budgets and financial statements and mapping out financial strategies, accountants also navigate the uncertainties a business might face.
The accountants monitor for risk factors, help with implementation and manage business controls to ensure that everything is running smoothly.
What is a Risk Management Process?
The Federation of European Risk Management Associates (FEMRA) defines risk management as “managing the threats and opportunities to organizations within acceptable limits.”
To ensure the success of a business or organization, in the long run, a risk management process consists mainly of the following tasks:
- Identify risks
- Analyze risks
- Choose techniques for risk mitigation
- Implement the chosen strategy
- Control its effectiveness
When completed in conjunction with one another, these steps ensure a successful risk management process.
Common Risk Factors that Businesses Face
Many factors fall under the risk management process of an organization. This includes isolating initiatives, events, people and products that cause a low return on investment, along with corrective actions needed to boost the overall appeal of the business. Accountants work to decipher what is productive for a business and what is not.
Regardless of the size of the industry, here are some common risk factors:
1. Financial
Financial risks include the monetary instability and disruption of failed projects, as well as rising expenses and low cash flow that can threaten bankruptcy.
2. Human Factors
Employees can threaten an entire operation, unnecessarily driving costs and lowering profit margins. This could be due to poor decision-making skills, careless errors, staffing problems or employee loss.
3. Environment
For an unprepared business, physical events and environmental changes such as floods and hurricanes can increase costs in time and damages. Cloud-based and reduced business risks can also threaten an entire operation.
4. Product/ Equipment Problems
Some risks that increase costs and inhibit work include failing equipment, product errors or delays and a lack of supplies.
An accountant can identify an organization’s risks and help mitigate them accordingly. Risk can be avoidable if it is continuously and closely monitored.
How Do Accountants Assist with the Risk Management Process
An accountant is one of the primary points of contact for organizations, especially small-to-medium enterprises (SMEs). They help identify and assess risks while introducing defense mechanisms that include training and advising on internal controls.
Accountants can assist with the risk management process by:
- Monitoring potential risks from global megatrends including climate change, digitalization and global supply chain integration
- Auditing and tracking risks that interrupt the growth of an organization
- Helping the business gain access to proper insurance coverage and the amount
Accountants help mitigate fraud and corruption, cash flow and insolvency, cybercrime and business succession. Accountants do not assist with the risk management process by avoiding all risks; instead, they take a suitable risk for the right return.
Risk management is an unknown territory for most businesses, but accountants help alleviate this burden. They improve the internal control program of a company to make risk management more efficient by assessing all risks and strategies before putting them in place.
Accountants manage financial reports including profit and loss, ledger inquiry, cash flow statement, trial balance, balance sheet and profit and loss versus budget. This is in addition to designing and planning strategies, implementing and executing them and monitoring everyday risk programs and activities.
Moreover, accountants assist with risk management by ensuring all staff members are familiar with risk control language and the standards that must be met with financial operations. This training method brings accountants to the front line as they assist organizations in considering risks before making final decisions.
These roles and responsibilities make accountants strategic partners to organization leaders as they help businesses thrive.
Final Thoughts
The accounting profession has transformed through numerous changes. In the modern world, accountants not only manage numbers at desk jobs writing reports and balancing books. They are trained to be strategic partners within an organization and specialize in risk management to protect the valuable resources of the business.
Some, but not all, risks are worth taking; our accountants make informed decisions and manage risks head-on. However, finding an accountant certified for undertaking the risk management process for a business can be tedious. Diener and Associates provide professional certified public accountants (CPAs) who are trained to oversee all business processes and minimize risk along the way.
Whether you are a small-to-medium-sized business, nonprofit organization or government contractor, contact our qualified CPAs today to help your company surpass the competition.