Northwest Missouri State University’s online Bachelor of Science (B.S.) in Accounting – Public program provides students with a solid foundation in accounting and prepares them for various careers. Courses such as Advanced Accounting, Business Law II, and Auditing provide the groundwork for graduates to contribute to strategic decisions concerning risk management.
Students in these courses will learn to prepare consolidated financial statements, understand the basic legal rules governing business (such as those related to agencies, negotiable instruments, secured transactions, bankruptcy, partnerships, corporations and other business organizations), and study the commonly accepted standards and procedures used in auditing.
Categories of Risk for Accountants
Accountants must consider several categories of risk. Here are three primary categories:
- Preventable risks: Risks that originate within an accounting firm and do not contribute to its objectives are classified as preventable risks. These risks can usually be prevented and often stem from mistakes, carelessness or bad choices.
- Strategy risks: In contrast, strategy risks are those that a firm knowingly assumes in pursuit of greater strategic gains.
- External risks: External risks are defined as those that are beyond the control of the accounting business and originate from outside the organization.
Key Responsibilities of Accountants in Risk Management
Accountants play a significant part in risk management. Their responsibilities include:
- Identifying risks: Accountants are well positioned to spot potential risks by analyzing financial data and business processes. They look for patterns, anomalies and areas of vulnerability that could lead to losses.
- Assessing risks: After identifying risks, accountants evaluate their chances of occurrence and potential impact.
- Mitigating risks: Accountants help develop and implement strategies to mitigate the impact of risks. This could involve designing internal controls, creating contingency plans or recommending insurance coverage.
- Monitoring risks: Risk management is an ongoing process. Accountants continuously monitor risks to track their status and determine if mitigation strategies are working.
- Reporting: Accountants communicate risk-related information to management and other relevant parties.
Organizations establish structures to manage risk effectively. These structures often involve various levels of responsibility, from individual employees to senior management. A common structure includes:
- Risk identification: Recognizing potential threats
- Risk analysis: Looking at how likely each risk is and what kind of damage it might cause
- Risk response planning: Developing options and actions to reduce negative impacts
- Risk monitoring and control: Keeping tabs on the known risks, putting response plans into action and assessing their effectiveness
There are several common ways organizations respond to risks:
- Avoidance: Eliminating the activity or condition that gives rise to the risk.
- Mitigation: Taking steps to make the risk less probable or have a more minor impact.
- Acceptance: Recognizing the risk but choosing not to do anything about it. This approach is often suitable for risks that are unlikely or would have minimal effect.
Internal Controls and Their Importance
Within an organization, internal controls are established guidelines and practices aimed at providing a high level of confidence that the company will achieve its operational, reporting and compliance goals. Internal controls are important for risk management since they:
- Help stop and find errors and fraud.
- Ensure financial information is accurate and reliable.
- Encourage operational efficiency.
- Support compliance with laws and regulations.
- Assist in the safeguarding of assets.
By establishing a system of internal controls, organizations can better manage risks and protect themselves from potential losses. Accounting firms face a range of risks, from those they can prevent internally to strategic risks they take on and external factors they cannot influence. For proper risk management and mitigation in the accounting field, a comprehensive understanding of these risk categories is essential.
Learn more about Northwest Missouri State University’s online Bachelor of Science in Accounting – Public program.
