The Magic Words: Internal Control Structure and Procedures In 1985, inspired by an alarming increase in fraudulent corporate financial reporting, a consortium of the largest accounting professional associations formed the National Commission on Fraudulent Financial Reporting, more commonly referred to as The Treadway Commission. Each member of the consortium also participates in a supporting organization, COSO ” literally, the Counsel of Supporting Organizations. COSO works on ethical and professional issues for the accounting profession. Periodically, it comes out with a report. These reports and their recommendations have a powerful self-governing influence on accountants.

In a 1992 report, COSO defined the ambiguous phrase internal control: Internal control is broadly defined a process, effected by an entitys board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1) effectiveness and efficiency of operations; 2) reliability of financial reporting; 3) compliance with applicable laws and regulations.

To be expressed as written policy and for tracking and reporting purposes, the COSO report states that internal control process manifests as a framework. COSO identifies eight core elements in its integrated framework for internal control. 404 specifically calls for just such an internal control structure that management has to describe and adjudge as to its effectiveness in the companys annual report. The SEC mentions COSO by name in its rules for 404, and declines making it the official legal standard only because foreign companies doing business in the United States might use a different structure. Thus, in practice, if not by law, the COSO framework probably will be the benchmark standard of internal control structure and procedures for US companies complying to 404. In part, the SEC says:

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The Magic Words: Internal Control Structure and Procedures In 1985, inspired by an alarming increase in fraudulent corporate financial reporting, a consortium of the largest accounting professional associations formed the National Commission on Fraudulent Financial Reporting, more commonly referred to as The Treadway Commission. Each member of the consortium also participates in a supporting organization, COSO ” literally, the Counsel of Supporting Organizations. COSO works on ethical and professional issues for the accounting profession. Periodically, it comes out with a report. These reports and their recommendations have a powerful self-governing influence on accountants.

In a 1992 report, COSO defined the ambiguous phrase internal control: Internal control is broadly defined a process, effected by an entitys board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1) effectiveness and efficiency of operations; 2) reliability of financial reporting; 3) compliance with applicable laws and regulations.

To be expressed as written policy and for tracking and reporting purposes, the COSO report states that internal control process manifests as a framework. COSO identifies eight core elements in its integrated framework for internal control. 404 specifically calls for just such an internal control structure that management has to describe and adjudge as to its effectiveness in the companys annual report. The SEC mentions COSO by name in its rules for 404, and declines making it the official legal standard only because foreign companies doing business in the United States might use a different structure. Thus, in practice, if not by law, the COSO framework probably will be the benchmark standard of internal control structure and procedures for US companies complying to 404. In part, the SEC says:

Read the rest of this entry