Committee of Sponsoring organizations of

Trade way commission(COSO)

COSO Framework
 Introduction
Committee of Sponsoring Organizations’ of Trade way commission(COSO) is formed in 1985 as a
consortium of five private sector organization dedicated for development of framework and guidance on
three major pillars.
 Enterprise Risk Management,
 Internal Control and
 Fraud Deterrence
Sponsoring organization of COSO are:
 American Accounting Associations,
 American Institute of Certified Public Accountants(AIPCA),
 Financial Executive International(FEI)
 The Association of Accountants and Financial Professionals in Business(IMA)
 The Board of COSO

Board of COSO is composed of Five member from each sponsoring organization with a chair elected by five
representative with three year tenure. Currently COSO is chaired by Mr.Paul J. Sobel, CIA, QIAL, CRMA
 Component of COSO framework

 COSO Enterprise Risk Management(ERM)

 COSO Internal Control
 COSO Fraud Deterrence
COSO Enterprise Risk Management(ERM)

Enterprise Risk management refer to action, method and process taken by board to identify the
risk associate with business and action to mitigate them on timely manner. COSO announced
its first frame work on ERM -Integrated Frame work in 2004 and revised on 2017.
Value is maximized when management sets strategy and objectives to strike an optimal
balance between growth and return goals and related risks, and efficiently and effectively
deploys resources in pursuit of the entity’s objectives. Enterprise risk management
encompasses:
COSO Internal Control

Internal control is the set of policies , procedures and rules that provide the organization
effective operation of activities t attain objectives of organization and in turn maximize the
vale of shareholders.
Information, Communication, and Reporting: Enterprise risk management requires a continual
process of obtaining and sharing necessary information, from both internal and external
sources, which flows up, down, and across the organization.(COSO Internal Control Frame
work 2013)
Internal control requires BODs and management to use judgement to determine how much
control is enough though this is very tough.
COSO Internal Control

COSO internal control has following components:

 Control Environment
 Risk Assessment
 Control Activities
 Information and Communication
 Monitoring Activities
COSO Fraud Deterrence

Fraud is always associated with intention. Wrongful intention backed by ignorance cause
fraud. Frauds may go beyond accounting and financial reporting. Fraud deterrence mainly
aims to remove factors causing fraud. Cause of fraud are analyzed in Fraud triangle. Factors of
Fraud triangle consists of Pressure, opportunity and rationalization.
Basic aim of fraud deterrence is to avoid fraud triangle factor with in organization. Effective
fraud deterrence will lower the like hood of occurring the fraud.
COSO has formed Fraud Risk Management task force and advisory panel to prepare fraud
deterrence guide and available publicly.
 Fraud Risk Management
The persons charged with governance are responsible for fraud risk management and deterrence. Person charged
with governance are Board of Directors, top management and internal auditors and independent board level
committees.
Fraud Risk management has following components and principles
 Fraud Risk Governance
 Fraud Risk Assessment
 Fraud Control Activity
 Fraud Risk Management monitoring Activities
 Common Nature of Frauds
 Some of common features of Fraud/likelihood of fraud are listed below:
 Fraud occurred in companies of all size,
 Companies facing financials distress provide space for fraud
 Most of fraud are dispersed in many fiscal year( As per COSO Fraudulent Report-2007 it may last for
31.4 months)
 Common fraudulent misstatement are mis recognition of revenue and overstatement of assets
 Philosophy of Board of Directors plays crucial role in fraud deterrence
 Companies having inside director( Managerial position) are likelihood of reported fraudulent financial
statements than companies having outside directors only.
 Significantly more related party transaction disclosure indicate the fraudulent reporting than no fraud
companies related party disclosure
 Fraud goes undetected by statutory auditors for all sizes companies
 Unqualified Audit opinion with additional explanatory language indicate the likelihood of fraud than
no fraud companies
 Frequency of change in auditors is higher in fraud companies than in non fraud companies
Conclusion

Based on the research above it can be concluded that COSO framework provides more
advanced approach in internal control and risk assessment and fraud deterrence. Some of
benefit are listed below:
 Internal control is improved and risk assessment is more vigilant.
 Chance of cost saving by utilization of effective e control system
 More positive views from investor and stakeholder as organization is employing COSO
frame work and has effective use.
 Frame work can be used for all types of business