Established in 1985, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) worked to help organizations manage risks and lead in the industry through comprehensive frameworks and guidance. Though COSO became popular because of its Enterprise Risk Management – Integrated Framework (2004), the organization’s Internal Control – Integrated Framework is just as important for companies to avoid unwanted surprises.
To understand what the framework does, an overview on internal control is required. Internal control usually means different things to different people. However, the most common definition of internal control is: a best practice which establishes the needs of different parties and provides a standard against which businesses can estimate their control systems and plan their improvement.
In short, IC is designed to help business entities enhance their performance, increase their profitability and prevent the loss of resources. This best practice is also helpful in financial reporting, which is one of the important aspects in today’s business sphere.
Internal Control consists of five interrelated components which are derived from the best practices of management. Those five components are:
Implementing the IC-Integrated Framework can help companies focus on their processes and reduce any risks they meet on the way. Therefore, investing in it will be a good decision.