What is the first step in conducting a risk assessment according to COSO?

In the context of the COSO framework, the first step in conducting a risk assessment involves identifying the specific financial statements or areas that are at risk. This foundational step is crucial because it allows organizations to understand where vulnerabilities lie and which aspects of their operations could potentially be affected by risks. By pinpointing the financial statements at risk, organizations can tailor their risk management strategies to address those specific areas effectively.

This identification process lays the groundwork for subsequent steps in the risk assessment, where the organization can further analyze the risks associated with the identified financial statements, assess the likelihood and impact of these risks, and develop mitigation strategies. A focused approach ensures that resources are directed towards the most critical areas, ultimately supporting better decision-making and enhanced safeguarding of the organization’s assets and financial integrity.

Other options, while relevant to risk management or operational assessments, do not address the primary objective of risk assessment as defined by COSO, which centers specifically on identifying risks related to financial statements and the processes that underpin them.