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Coso framework

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  • 1. COSO Framework
    Ryan J. Hutten
    Aaron Zillinger
  • 2. COSO
    Comprised of:
    AAA
    AICPA
    FEI
    IMA
    IIA
  • 3. COSO: Committee of Sponsoring Organizations
    AAA (American Accounting Association)
    AICPA (American Institute of Certified Public Accountants)
    FEI (Financial Executives International)
    IMA (Institute of Management Accountants)
    IIA (Institute of Internal Auditors)
  • 4. COSO Continued
    MISSION STATEMENT: The Committee of Sponsoring Organizations’ (COSO) mission is to provide thought leadership through the development of comprehensive frameworks and guidance on enterprise risk management, internal control and fraud deterrence designed to improve organizational performance and governance and to reduce the extent of fraud in organizations.
  • 5. …But that’s not really what we’re talking about…
    The COSO Framework is about helping senior executives and managers in their establishment of better and more accurate internal controls
  • 6. The Control Environment
    Attitudes, awareness, policies, and actions of management, board of directors, and staff concerning internal control and its importance in the entity
    Positive control environment:
    Provides discipline and structure
    Communicates integrity and ethical values
    Sets a positive “Tone at the Top” and “Trickle-down Effect” (Ref. 2)
  • 7. The Control Environment
    7 Factors Affecting the Control Environment
    Communication and Enforcement of Integrity and Ethical Values
    Commitment to competence
    Participation of governance
    Managers Philosophy and Operating Style
    Organizational Structure
    Assignment of authority and responsibility
    Human resource policies and practices
  • 8. Risk Assessment
    Management’s identification of risk including:
    Looking for risk relevant to the preparation of the financial statements
    Estimating their significance
    Assessing the likelihood of their occurrence
    Deciding on the best way to manage them
  • 9. Where does this risk come from?
    Changes in operating environment
    New Personnel
    Rapid Growth
    Corporate Restructurings
  • 10. Information System and Related Processes
    Infrastructure that consists of software, people, procedures, and data
    Identifies, captures, and communicates information in a form and timeframe that members involved can carry out their responsibilities
    Example: Accounting system
    Incorporates procedures that initiate, record, process, and report entity transactions and maintain accountability for related assets
  • 11. Control Activities
    Pertain to internal controls to verify that management’s directives are carried out to address risks
    Might include:
    Performance Reviews
    Physical Controls
    Segregation of Duties
  • 12. Monitoring of Controls
    Newly issued by COSO (2009) “Guidance on Monitoring Internal Control Systems”
    Purpose: To assess the quality of internal control performance over time and redesign controls when risks change
    Also necessary:
    Establish a baseline for control effectiveness
    Design and execute monitoring procedures that are based on the significance of business risks relative to entity objectives
    Assess and report results
    Follow-up and/or corrective actions
    Can be ongoing or nonrecurring
    Example: Inventory Valuation
  • 13. Conclusion
    Control Environment: Verifying Compliance set forth in the Code of Conduct
    Risk Assessment: Verifying the controls in place keep the company free of material misstatement
    IS & Related Processes: Verification that the IS measures line item accounts and management assertions accurately
    Control Activities: Discourages unethical behavior to better achieve management goals
    Monitoring of Controls: Assesses the quality and effectiveness of Internal Controls, and how to change them for the better
  • 14. Works Cited
    "Internal Control - Integrated Framework." Committee of Sponsoring Organizations. Web. 2 Oct. 2011. <http://www.coso.org/IC-IntegratedFramework-summary.htm>.
    http://www.ventureline.com/accounting-glossary/T/tone-at-the-top-definition/
    Messier. Auditing and Assurance Services. 7. New York: McGraw-Hill Irwin, 2010. 187-96. Print