Management Accounting - Solved Assignment

RUNNING HEAD: MANAGEMENT ACCOUNTING
Enterprise Risk Management

Management accounting 2
MEMO
TO: The Reader
FROM: Student
DATE: 5th June 2018
SUBJECT: Reviewing ERM implementation at Entropic Communications Inc.
Introduction
Enterprise Risk Management is one of the leading tool used for addressing and measuring the
risks. As per the Sarbanes-Oxley Act passed in 2002, companies are required to produce and
maintain an annual internal control report for verifying the effectiveness of their internal
control procedures. In order to meet these compliance companies started using the Internal
Control Framework developed by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In 2004, COSO developed the process of ERM which
measures a wide range of risk starting from operational risks to strategic risks. It also defines
other financial and compliance risks.
The process was adopted by Entropic Communication Inc. which was a fabless
semiconductor company engaged in selling hardware devices and outsourcing the fabrication
of the device to a specific manufacturer. The company was exposed to so many risks and due
to several other reasons, it implemented ERM in its organization.
Requirement 1
Entropic being a growing semiconductor company was exposed to so many internal and
external risks. In order to deal with them Lance Bridges, Entropic’s VP/general counsel, had
taken the responsibility of implementing Enterprise Risk Management in the organization.
Following are the reasons for implementing a formal ERM process:

Management accounting 3
 Improve risk response decisions
The company had so many business risks, intellectual property risks and risks related to
international operations and common stock. It was very important for Entropic’s management
to select appropriate risk responses which will help in avoiding, reducing and sharing the risk.
ERM help in developing a set of actions that will align the company’s overall risks with its
risk tolerances and risk appetite. It also improves the decisions taken related to risk response.
In most of the cases, mitigation plans were developed to reduce the risk at Entropic.
Company's legal and IT department collaborated to develop a document retention policy. As
a result of which, ERM stimulated a high-level compliance in the company's Human
Resource Department.
 Managing risks within risk appetite
Risk appetite basically means the amount and type of risk a company is willing to take in
order to meet its strategic objectives. ERM helps Entropic Communications to manage all
types of its risk according to its strategic goals and objectives. Risks are been properly
analyzed considering their impact and decisions related to their management are been taken.
A simple two-dimensional scoring method was developed which was used by all the
departments to rate the risks.
 Pressure from SEC to create a risk management process
Entropic was obliged to make amendments in its rules required by the Securities Exchange
Commission. As per the amendments, the company was required to make new and revised
disclosures. Entropic receives pressure from SEC to install a risk management process which
will describe the board's role in risk oversight. This arises the need of implementing
Enterprise Risk Management process.
 Address risks systematically