A Risk-Oriented Model for Controlling the Objectives of Economic Systems

A risk-based approach to control and management at macro and micro levels necessitates the formalization of procedures for their assessment based on accounting and reporting data. At the macro level, it is essential to monitor the effectiveness and associated risks of managerial objectives. At the micro level – within economic complexes (systems) – the optimal informational choice is accounting (financial) reporting and management reporting prepared in accordance with accounting principles. In this context, management reporting refers to reports generated from information recorded in accounting accounts at historical cost prior to any transformations through accounting operations. By accounting operations, the authors mean transactions conducted in accounting based on calculations made by accountants or relevant departments in compliance with accounting standards. Financial (accounting) reporting cannot be used to identify and assess risks because it is distorted by entries that reflect the financial departments’ evaluative judgments about the value of assets and liabilities. The proposed methodology is built upon the study of dynamic changes in the indicators of balance sheet items and the income statement. Given the objectives of commercial entities, profit is the primary indicator of the ability to sustain operations in the future. Cash assets must accompany and align with profit in dynamic deviations. Such an assessment is easily programmable and enables management to promptly identify continuity risks based on profit and capital risks.