Accounting and risk management: the need for integration

Brendon Young

Journal of Operational Risk

Abstract: ABSTRACT Published accounts and current risk management approaches are failing in their purpose of properly informing stakeholders of the true risk-reward relationship. This continues to represent a serious threat to the efficacy of the overall financial system. Unfortunately, intellectual failure has resulted in regulatory, legislative and industry responses that have proved to be misdirected or inadequate. Indeed, enterprise-wide risk management is a theoretical concept born of intellectual failure. Current approaches that rely on hierarchical principles and that strive for optimization lead to ossification and rigidity. The requirement is for reporting and control approaches that are more appropriate to, and that mirror, the dynamic economic environment, giving due consideration to both short- and longer-term issues of continuity and survival. There exists a need for greater integration. To paraphrase Darwin, "it is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change".

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