6.09

Risk Assessment

Principle 6 - Define Objectives and Risk Tolerances

Attribute 6.09 - Management defines risk tolerances in specific and measurable terms so that they are clearly stated and can be measured. For example, for an objective to process all benefit applications within 10 business days of receipt, management may determine that a risk tolerance of a range of 8-12 business days would be an acceptable level of variation. Depending on the category of objectives, risk tolerances may be expressed as follows:

• Operations objectives - Acceptable levels of variation in performance relative to the achievement of operations objectives.
• Nonfinancial reporting objectives - Level of precision and accuracy suitable for user needs, involving both qualitative and quantitative considerations to meet the needs of the nonfinancial report user.
• Financial reporting objectives - Judgments about materiality that consider surrounding circumstances, involve both qualitative and quantitative considerations, and are affected by the needs of financial report users and size or nature of a misstatement.
• Compliance objectives - Acceptable levels of variation in performance relative to the achievement of compliance objectives, within the context of applicable laws, regulations, and external standards.

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