Governance, Risk and Compliance (GRC) strategies are essential for companies requiring a balance between risk taking to generate increased returns and effective control over business activity. Companies have previously failed as a result of uncontrolled strategies and GRC is designed to capture those behaviors that contribute to a failing strategy. There are a number of accounting software packages available that formalize the GRC reporting process and assist with achieving effective compliance with current recommendations. It is important to recognize the role of GRC in assisting companies in developing their business model.
GRC – Why Is It Necessary?
Previous reactions to economic scandals include the Sarbanes Oxley (Sarbox) legislation which was drafted in response to the Enron crisis in 2001. The legislation was launched in 2002 and made the management of large corporations personally responsible for the accuracy of the financial information. The introduction of such a ruling created a revolution in the board room as company directors could no longer hide behind a corporation when defending criticisms over the provision of poor or misleading financial data. Sarbox in many ways was the forerunner of GRC legislation which was developed over a much longer timescale and sought to build on the core principle that good corporate governance was at the heart of strong and successful companies.
The Principles Of GRC Financial Reporting
The core principle of GRC is that it is a fluid process that grows with a company and this should enhance the internal workings of a business and not act as a threat to ongoing activity. The process is an asset to any business because it forces key personnel to look closely at the business and identify areas of risk where controls may be failing or are simply not present. GRC is not a system that identifies risk and creates a penalty. The GRC process is used to identify areas of risk, audit the internal systems and the effectiveness of governance before delivering a series of recommendations that can be used to improve the business.
Impact Of GRC Reporting
A key area of the GRC process is the management of both internal and external auditors to ensure both roles are being conducted very carefully to focus on the key risks to the business. Information Technology (IT) Systems are at the heart of most modern businesses and it is essential for the management of a large corporation to be confident that there are no critical risks within the IT processes. The reliance on automated process is designed to reduce costs for a business but this is not the case if it contains inherent risk. The execution of a well designed GRC checklist will enable business managers to identify areas of risk and also make recommendations if any problems are identified. The process of evaluation is constant because managers need continued assurances that their businesses are well run and do not create personal risk due to poor governance. According to money.co.uk, having good internal systems that mitigate risk should lead to improved insurance costs when businesses are seeking a quote for insurance cover. Business managers require a software package that will not only assist with the identification of risk but also provide continued assurance that the company is developing its controls in line with its commercial activities.
Success Of GRC Reporting
Companies have developed enormously since senior management were made more accountable for decisions made to develop the commercial side of their business. What was once a reactive process has now moved to an integrated proactive system that helps firms evolve and assists managers in making commercial decisions. The use of GRC software assists management with the development of a risk framework which can be used to monitor the effectiveness of governance and controls. Without software the process of implementing GRC could become prohibitively expensive if each company had to design its own system of identifying risk and controls. A standard solution can still be customised to meet the needs of each individual company but the existance of a uniform framework reduces the risk of the GRC implementation missing any key areas. By providing management with the tools to identify and address any business issues with GRC, software companies are empowering management to run their companies more efficiently and to spend more of their time making effective decisions that fit the ethos of the company they are managing.