Ch3_part2 - COSO Framework(II ACT3642 1/2010 A Phassawan S...

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COSO Framework (II) ACT3642 1/2010 A. Phassawan S.
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COSO Framework The Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed the framework or standard for understanding and establishing effective internal controls in virtually all business systems. COSO was founded by the five U.S. professional auditing and accounting organizations: American Institute of Certified Public Accountants (AICPA) The Institute of Internal Auditors (IIA) Financial Executives Institute (FEI) American Accounting Association (AAA) Institute of Management Accountants (IMA)
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COSO Framework COSO defines internal control in this way; Internal control is a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations.
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COSO Model of Internal Control Exhibit 3.1 COSO Internal Control Framework- Three-dimensional model Five levels Three major components Segments
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COSO Framework 1. Control Environment
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COSO: Control Environment The foundation of any internal control structure is the internal control environment. It has a pervasive influence on how all activities are structured and risks are assessed. It has an influence on each of the three objectives and overall unit and entity activities. The control environment reflects the overall attitude, awareness, and actions by the board of directors, management, and other concerning the importance of internal control.
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COSO: Control Environment While there are many different fundamental concepts, each enterprise should have it own unique internal control foundation to support its controls structure. Enterprise history and culture often play a major role in forming the environment. When an enterprise historically has had a strong management to emphasis on producing error-free product When senior management to emphasize the important of high-quality products When this message is communicated to all levels It becomes a major enterprise control environment
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COSO: Control Environment The major elements of the COSO control environment of internal control are: I. Integrity and ethical value II. Commitment to competence III. Board of directors and audit committee IV. Management s philosophy and operating style V. Organizational structure VI. Assignment of authority and responsibility VII. Human resources policies and practices
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COSO: Control Environment I. Integrity and ethical values The collective integrity and ethical values are often defined by the “tone-at-the-top” messages communicated by senior management. If the enterprise has developed a strong
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Ch3_part2 - COSO Framework(II ACT3642 1/2010 A Phassawan S...

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