Corporate Compliance: Committee of Sponsoring Organization

RUNNING HEAD: Corporate Compliance: Committee of Sponsoring Organization

Corporate Compliance: Committee of Sponsoring Organization (COSO)

MBA/560 Enterprise Risk

University of Phoenix

Abstract

Internal controls in any organization were executives are constantly keeping a close look on the accuracy and effectiveness of these controls to help improving them. According to the Committee of Sponsoring Organization, the implementation of internal controls helps guide companies in reaching towards their profitability goals. These are accomplishment of their mission statement, which helps minimize any unexpected events that may occur. They can be analysis to describe the importance of internal control, identify effective internal control, and illustrate the relationship between ethics and internal control and the importance of the Sarbanes-Oxley Act.

Internal Controls

“Internal control is a process, affected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives.” (COSO) It’s an essential part of a company’s financial and business policies and procedures. Internal control systems function at different levels of effectiveness in any organization is one that provides reasonable protection of assets, reliability of financial information. An effective internal control helps the organization not only achieve its goals and mission, but also helps the organization promote more effective operations and reduce the possibility of asset loss. Internal controls, however, do not ensure success. The internal control process consists of five components, control environment, risk assessment, control activities, information and communication, and monitoring.

First, control environment establish a foundation in which people conduct their activities. Control environment includes the integrity and ethical values of the company’s employees, management and operating style. Management assigns authority and responsibility, and recognizes how management organizes and develops its people, and the organization’s policies and procedures.

Second, risk assessment is the identification and analysis of relevant risks that affect the accomplishment of the company’s objectives and determining how these risks should be managed. It is very important for managers to decide what level of risk they are willing to believe, identify and how to approach them. “Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed.” (COSO)

Third, control activities are the policies and procedures that help to ensure that management information are implicated. These controls can also be preventive or detective. Preventive controls are proactive and include written policies and procedures, limits to power and supporting documentation. Detective controls, do not prevent unwanted acts but can help or assist to detect them.

Fourth, information and communication refers to the identification any given information, that is communicated in order to carry our peoples their own responsibilities. Management must be able to communicate to their employees the importance of internal controls so they can better understand their roles. Additionally, there needs to be effective communication to establish those within the outside organization such as customers, suppliers and shareholders.

Fifth, monitoring is the process that assesses the quality of the performance of the control system. This is accomplished by ongoing monitoring activities and frequent evaluations of the internal controls which help detect existent deficiencies. “Ongoing monitoring occurs in the course of operations. It includes regular management and supervisory activities, and other actions personnel take in performing their duties.” (COSO)

Effective of Internal Control

“Effective internal control requires a strong control environment under which the other components are implemented. The underlying principles of good control and commitment to adhering to sound control compliance.” (COSO) Effective internal controls are a vital component to the foundation of a safe and successful organization. An effective internal control system is one which provides reasonable protection of assets, reliability of financial information, and compliance with laws and regulations. With a suitably designed and consistently enforced system of internal controls helps a company’s managers and the board of directors provides a safeguard which produces