COSOs

Internal Control Integrated Framework

An Overview..
Source: COSOs Internal Control Integrated framework

Prepared by Wael F. Bibi ,JCPA,CPA,CIA

Bibi Consulting,Inc.
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What is COSO?

Who are the sponsors?

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What Is Internal Control ?

A process effected by an entitys board of
directors,management and other personnel,designed to provide reasonable assurance regarding the achievements of objectives in the following categories:
j Effectiveness & efficiency of operations. j Reliability of financial reporting. j Compliance with applicable laws and regulations.

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j Internal control is a process. It is a means

to an end, not an end in itself. j Internal control is effected by people. Its not merely policy manuals and forms, but people at every level of an organization. j Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entitys management and board. j Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

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Components Of Internal Control

j Control Environment. j Risk Assessment. j Control Activities. j Information & Communication. j Monitoring.

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Control Environment
j Sets the tone of the organization. j The foundation for all other components. j It includes the integrity,ethical values and competence of

the people. j Reflects: managements philosophy & operating style,the way management assigns authority and responsibility and organizes and develops its people, and the attention and direction provided by the board of directors.

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Risk Assessment
j Every entity faces internal &external risks. j Every entity sets objectives. j Risk assessment is the identification and

analysis of relevant risks to achievements of the objectives.

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Control Activities
j The policies and procedures that help ensure

management directives are carried out. j They help ensure that necessary actions are taken to address risks. j Control activities occur throughout the entity at all levels and in all functions. j They include activities such as approvals , authorization,reconciliations and segregation of duties.

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Information & Communication

j Relevant information must be identified , captured

and communicated in a form & timeframe that enables people to carry out their responsibilities. j Information systems produce reports containing operational,financial and compliance related information that make it possible to run and control the business. j Effective communication must occur in a broader sense,flowing down,across and up the organization.

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Monitoring
j Internal control systems need to be monitored. j Types of monitoring:

- ongoing during the course of operations. - evaluation for which the scope and frequency will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures.

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Responsibilities
Who is responsible for internal control ?

Everyone !
Board of Directors :Governance,guidance & oversight Management : CEO is the owner Internal Auditors: evaluate & monitor Other personnel :information and communication
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What Internal Control Can Do

j It can help achieve performance & profitability

targets. j It can help prevent loss of resources. j It can help ensure reliable financial reporting.
j It can help ensure compliance with laws.

It can help an entity get to where it wants to go,and avoid pitfalls and surprises along the way.
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What Internal Control Cannot Do

j It cannot ensure success. j It cannot ensure the reliability of financial

reporting. j It cannot ensure compliance with laws and regulations. Internal controls ,no matter how well designed and operated,can provide only reasonable assurance to management regarding achievements of an entitys objectives.

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Limitations of Internal Control

j Judgement. j Breakdowns. j Management override. j Collusion. j Costs Versus Benefits.

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