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Greetings--initial blog; ERM to be used for S&P credit rating

Jan 17th 2008
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By Dave Tate, CPA, Esq. - Greetings all. In this initial blog I just wanted to get on the board with a quick introduction. I know there are a lot of you out there, but I don't really have a feel for your job titles or what you will be looking for in this blog. So we will try several different topic areas. I practice as a lawyer (20 years of representing clients, and a lot of litigation). I am also a CPA (California, with Deloitte a long time ago). Many of the items that I write about relate to the interaction between accounting/auditing and legal perspectives. Of course, I do encourage you to provide your comments, agreements and disagreements.

Last night I ran across an interesting item. Standard and Poor's is considering adding enterprise risk management as a key component of their credit rating analysis. S&P has asked for comments to be submitted by February 1; however, it is clear that they have already spent a lot of time deciding what ERM areas will be evaluated for credit rating purposes. It looks like S&P has already committed to adding ERM as a component--the comment period appears to be merely perfunctory. My concern has been that prudent ERM can be subjective, and varies from industry to industry, and possibly from company to company. On the other hand, risk management is prudent and should be an item of management. Each company needs to decide what risk management will mean and include for that company. And, there needs to be a determination at the board level about who will be involved in the board's ERM oversight. I have seen a move to have the audit committee perform that oversight. However, other than responsibilities that the audit committee must perform pursuant to legal requirements (which do not specifically include ERM), the audit committee is subject to the board's oversight and is only responsible for activities that are delegated to it by the board. And, audit committee members need to be aware of and agree to the responsibilities that they will perform. More on that later. If you are interested, click here to learn more about S&P and ERM.

Have a good day.
Dave Tate


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