What is COSO’s Internal Control – Integrated Framework?

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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.

About Internal Control

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.

The IC-Integrated Framework

Internal Control consists of five interrelated components which are derived from the best practices of management. Those five components are:

  1. Control Environment – This module aims at setting the tone of an organization by motivating workers to become more control conscious. In essence, this is the main component of the IC-integrated framework since it provides discipline and structure.
  2. Risk Assessment – Every entity in the business is bound to meet with external and internal risks, therefore they need to be assessed beforehand. Assessing risks helps in formulating plans to reduce their effects or even eliminate them altogether before they affect the organization and its processes.
  3. Control Activities – This module contains the policies and procedures which help in ensuring that management directives are implemented. These activities are required because they help guarantee that the organization is heading towards achieving its objectives.
  4. Information and Communication – Information that is vital for the company’s processes should be identified and communicated as quickly as possible to avoid any risks which can hinder production.
  5. Monitoring – IC systems should be monitored in order to ensure that their performance is of high quality and consistency throughout. This module provides risk assessment professionals with guidance on this aspect.

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.

Further reading: Corporate Governance | Audit | Performance Improvement

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