Question

A manufacturing firm identified that it would have difficulty sourcing raw materials locally, so it decided to relocate its production facilities. According to COSO, this decision represents which of the following responses to the risk?

Answer 1

Answer:

Risk reduction

Explanation:

The Committee of Sponsoring Organizations (COSO) developed an Integrated Framework for evaluating internal controls. The latest version (2017) is called the Enterprise Risk Management Integrated Framework. It is an updated version of the original framework developed in 1992.

Risk reduction is one of the four ways the COSO framework deals with potential risks. The company should take actions to reduce risk. Since it is difficult to avoid risk, sometimes it is better to just take action to reduce it.

In this case, the manufacturing firm knows it will face a lot of problems and potential risks due to a lack of availability of raw materials, so it will move its facilities to a place where raw materials are easily available.