Principle 7: Identifies and analyzes risks

To meet the principle 7: identifies and analyzes risks requirement, you must run a repeatable risk assessment process that ties risks to objectives, evaluates likelihood and impact, selects responses, and produces evidence an auditor can trace from risk to control and remediation. Your fastest path is a documented risk methodology, clear ownership, and a risk register that drives control design and monitoring.

Key takeaways:

• Maintain a current, objective-linked risk inventory with consistent scoring and defined risk responses.
• Make the process auditable: documented methodology, approvals, and traceability from risk to controls and action plans.
• Operationalize through control cards, minimum evidence bundles, and recurring control health checks. ¹

Principle 7 sits in COSO’s Risk Assessment component: you are expected to identify risks to achieving objectives and analyze those risks so management can decide how to respond. That sounds straightforward until an audit asks for proof that (1) risks are identified systematically, (2) the analysis is consistent and repeatable, and (3) outcomes actually drive controls, monitoring, and remediation.

For a Compliance Officer, CCO, or GRC lead, operationalizing this requirement means building a risk assessment “production line,” not writing a policy. Examiners and external auditors usually fail teams here for one of three reasons: the risk assessment is not tied to business objectives; scoring is subjective and changes by assessor; or the organization cannot show evidence that risk outcomes changed decisions (controls, resources, vendor/third-party requirements, or remediation priorities).

This page gives you requirement-level implementation guidance you can execute quickly: who owns what, what artifacts you must retain, how to structure risk workshops and scoring, and how to answer common audit questions without scrambling. Guidance is aligned to COSO’s Internal Control – Integrated Framework materials. ²

Regulatory text

Regulatory excerpt (provided): “COSO internal control principle 7 implementation expectation.”

Plain-English operator interpretation: You must maintain a defined process to (a) identify risks that could prevent the organization from achieving its objectives, (b) analyze those risks using consistent criteria, and (c) use that analysis to select and track risk responses (avoid, reduce, share/transfer, accept) through controls and action plans. The process must be repeatable and supported by evidence that it operates as designed. ³

What this means in practice:

• Your “risk assessment” cannot be a slide deck created once a year. It has to be a managed process with owners, triggers, and outputs.
• The output must be decision-grade: it should drive control selection, third-party requirements, and remediation prioritization.
• Evidence matters as much as the assessment itself. If you cannot show who did the work, when, using what method, and what changed because of it, you will struggle to defend effectiveness. ¹

Who it applies to (entity and operational context)

Entities: Any organization using COSO as its internal control framework baseline, including public companies (SOX context), private companies with audited financials, regulated businesses, and organizations responding to customer diligence that maps to COSO. ¹

Operational contexts where Principle 7 becomes “real”:

• SOX / ICFR: risks of material misstatement mapped to key controls and control testing.
• Security and privacy governance: enterprise risk assessment feeding control objectives, security roadmap, and incident preparedness.
• Third-party risk management: risks introduced by third parties (systems, data access, operational dependency) feeding due diligence depth and contract controls.
• Major change events: new products, acquisitions, ERP migrations, outsourcing, data center moves, and leadership changes. These should trigger targeted risk reassessments.

Plain-English requirement: what “good” looks like

A strong Principle 7 implementation has these characteristics:

1. Objectives-first: risks are explicitly tied to objectives (financial reporting, operational resilience, compliance obligations, customer commitments).
2. Complete risk identification: risks cover people, process, technology, third parties, and external events, not only “IT risks” or “finance risks.”
3. Consistent analysis: likelihood/impact criteria are defined, used consistently, and calibrated across teams.
4. Response and accountability: every material risk has an owner and a response decision, and accepted risks have documented rationale.
5. Traceability: you can trace from objective → risk → inherent risk rating → response → controls/action plan → residual risk → monitoring. ¹

What you actually need to do (step-by-step)

Step 1: Define the risk assessment method (make it auditable)

Create a short, enforceable methodology document:

• Scope (enterprise, business unit, process, or objective set)
• Risk taxonomy (categories you will always consider, including third-party risk)
• Scoring model (definitions for likelihood and impact, and how you calculate inherent vs. residual risk)
• Criteria for “material” or “priority” risks (your thresholds can be qualitative if that fits your program)
• Required participants, approvals, and review cadence triggers (e.g., strategic planning cycle, major changes)

Operator tip: Keep definitions concrete. “High impact” should point to a specific type of harm relevant to your objectives (financial misstatement, regulatory breach, service outage, safety incident), not a generic label. ¹

Step 2: Assign ownership and run it like a control

Treat the risk assessment as a control with named accountability:

• Executive sponsor (e.g., CFO for ICFR; COO/CISO for operational/security risk)
• Program owner (GRC lead)
• Risk owners (business leaders accountable for each risk)
• Approvers (risk committee, executive leadership, audit committee as appropriate)

Implement a requirement control card that includes: objective, owner, trigger events, execution steps, exception rules, and outputs. This converts Principle 7 from “expectation” into a runbook operators can follow. ¹

Step 3: Identify risks tied to objectives (structured intake)

Run structured identification using at least two channels:

• Top-down: workshops with leadership by objective/process (financial close, revenue recognition, customer support, SDLC, vendor onboarding)
• Bottom-up: intake from incidents, audit issues, control failures, third-party findings, and change management

Minimum fields to capture in the risk register:

• Objective linked to risk
• Risk statement (cause-event-impact format)
• Risk owner
• Inherent likelihood and impact (with rationale)
• Existing controls and their effectiveness assumption
• Residual risk rating (if you assess it)
• Proposed response and action plan
• Target date and status

Third-party integration: if a third party supports a key objective (hosting, payments, customer data processing), explicitly record dependency risk and contract/control requirements as part of the response. ¹

Step 4: Analyze and calibrate scoring (reduce subjectivity)

Do a calibration pass:

• Compare scores across teams and challenge outliers
• Require rationale text for high-rated risks
• Document assumptions (system volumes, reliance on a single third party, manual steps)

Common audit hangup: scores that change because a new assessor “felt differently.” Calibration notes and defined scoring criteria reduce that exposure.

Step 5: Select risk responses and map to controls

For each priority risk, document one of these responses:

• Reduce: implement or strengthen controls
• Share/transfer: insurance, outsourcing with contractual protections, risk-sharing arrangements
• Avoid: discontinue a product/process or redesign
• Accept: document rationale and monitoring plan

Then map:

• Risk → control objective → control activity (prevent/detect) → control owner → testing/monitoring method

If your program includes third-party risk management, map risk response to third-party controls: due diligence depth, security requirements, audit rights, SLAs, incident notice, and termination/exit planning.

Step 6: Define the minimum evidence bundle (so you can pass audits)

For each execution cycle, pre-define what “proof” looks like and where it lives:

• Inputs (workshop agendas, attendee lists, system reports, incident logs, third-party assessments)
• Working papers (risk scoring sheets, calibration notes)
• Approvals (risk committee minutes, sign-offs)
• Outputs (risk register export, heat map if used, action plan tracker)
• Retention location (GRC tool, ticketing system, controlled repository)

This “minimum evidence bundle” prevents the common failure mode: the work happened, but nobody can prove it. ¹

Step 7: Run control health checks and remediate gaps

Operationalize ongoing monitoring:

• Periodic checks that risk assessments were completed when triggered
• Validation that action plans closed with evidence
• Follow-up on accepted risks (confirm conditions have not changed)

Track remediation items to validated closure with due dates and an evidence link. ¹

Required evidence and artifacts to retain (audit-ready list)

Maintain these artifacts in a controlled repository:

• Risk assessment methodology (versioned)
• Risk taxonomy and scoring criteria (versioned)
• Current risk register with history or change log
• Workshop materials and attendance (or equivalent interviews)
• Calibration notes and scoring rationales
• Risk response decisions and approvals
• Mapping from risks to controls and control owners
• Action plan tracker with closure evidence
• Control card for the risk assessment process
• Minimum evidence bundle definition and retention map ¹

Common exam/audit questions and hangups

Auditors typically probe four areas:

1. “Show me the link to objectives.”
   Hangup: a risk list not tied to business objectives reads like a brainstorm, not a control system.

2. “Who owns this risk?”
   Hangup: “GRC owns all risks” is not credible. Risk owners must be in the business.

3. “How do you know scoring is consistent?”
   Hangup: missing scoring definitions, no calibration, no rationale notes.

4. “What changed because of this?”
   Hangup: no traceability to controls, budget decisions, third-party requirements, or remediation work. ¹

Frequent implementation mistakes (and how to avoid them)

• Mistake: Treating the risk register as the deliverable.
  Fix: make the deliverable the decisions: risk responses, control mappings, and funded action plans.

• Mistake: No trigger-based reassessment.
  Fix: define triggers (material incidents, major releases, M&A, third-party changes) and require documented re-runs.

• Mistake: “Accepted risk” without rationale.
  Fix: require a documented acceptance statement, owner, review date trigger, and monitoring plan.

• Mistake: Evidence scattered across inboxes.
  Fix: define the evidence bundle and a single retention location; make it part of the control card. ¹

Enforcement context and risk implications

No public enforcement cases were provided in the source catalog for this requirement. Practically, your exposure shows up in audit findings, SOX deficiencies, customer diligence failures, and regulator criticism of governance and internal control maturity. COSO is a framework, but stakeholders use it as a benchmark for whether risk identification and analysis is disciplined and repeatable. ²

Practical 30/60/90-day execution plan

First 30 days (stabilize and define)

• Assign sponsor, program owner, and risk committee decision path.
• Draft risk assessment methodology, scoring criteria, and taxonomy aligned to your objectives. ¹
• Create the control card for Principle 7 execution (owner, triggers, steps, exceptions).
• Define the minimum evidence bundle and retention map.

Days 31–60 (run the first auditable cycle)

• Run objective-based workshops for your highest priority processes (finance close, revenue, security, third-party onboarding, or whatever is most material to your organization).
• Produce a risk register with owners, scores, rationales, and initial response decisions.
• Perform calibration and document changes and assumptions.
• Map top risks to controls and open remediation items where gaps exist.

Days 61–90 (prove operation and close gaps)

• Put action plans into a tracked workflow with due dates and closure evidence.
• Implement recurring control health checks: confirm triggers are monitored and re-assessments occur when required. ¹
• Prepare an audit-ready package: methodology, latest risk register export, approvals, and a sample trace from risk to control to evidence.

Where Daydream fits naturally: if you struggle to keep risk-to-control traceability and evidence bundles consistent across cycles, Daydream can standardize control cards, automate evidence collection pointers, and keep remediation tied to validated closure without relying on spreadsheets.

Frequently Asked Questions

How detailed does the risk assessment need to be to satisfy Principle 7?

Detailed enough that a reviewer can trace each priority risk to an objective, a scoring rationale, an owner, and a documented response. If the assessment cannot drive control decisions or remediation priorities, it will not hold up well against COSO expectations. ¹

Do I need residual risk scoring?

COSO expects risk analysis and response decisions; residual scoring is a practical way to show the effect of controls. If you skip residual scoring, document how you evaluate control effectiveness and how you decide whether risk is acceptable. ²

How do I incorporate third-party risk into Principle 7?

Treat third-party dependencies as risk sources tied to objectives (availability, confidentiality, financial reporting). Record the dependency in the risk register and make the response concrete: due diligence depth, contractual controls, monitoring, and exit planning. ¹

What evidence do auditors ask for most often?

A versioned methodology, the current risk register with rationales, proof of calibration, and meeting minutes or approvals showing management reviewed and accepted the outcomes. They also ask for traceability from a top risk to the control(s) that mitigate it. ¹

We already do an annual ERM assessment. Is that sufficient?

Often not by itself. You need evidence that risk assessment is refreshed when conditions change and that results flow into control design and monitoring in the areas that matter (financial reporting, operations, compliance, third parties). ¹

Who should be the risk owner: GRC or the business?

The business should own the risk because they own the objective and the operational decisions. GRC should run the process, enforce the methodology, and maintain evidence quality. ¹

Footnotes

1. COSO IC framework overview

2. COSO Internal Control guidance page

3. COSO Internal Control guidance page; Weaver summary of COSO 17 principles