ENSHRINING AN EFFECTIVE INTERNAL CONTROL SYSTEM – THE COSO FRAMEWORK (PART 2) 

To design and implement an effective internal control system, the Committee of Sponsoring Organisation of the Treadway Commission (COSO) identified five components which must be present and functioning. The five components support the organisation in its efforts to achieve its objectives – operations, compliance, and reporting. The five components are Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. They are relevant at all levels of an entity; entity level, divisions, operating units and functions. In the Part 1 of this series, we have learnt the definition and meaning of internal control and its objectives according to the COSO framework. In this second part, we will take a full dive into the components of internal control and the other changes in the new internal control framework of 2013.

ENSHRINING AN EFFECTIVE INTERNAL CONTROL SYSTEM 

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A corporation, big or small, would be a den of chaos, if a sound internal control system is not enshrined in the entity. A major reality of the modern day complexities of a 21st century business entity is that there are so many transactions, activities, employees, and functions that if they are not properly coordinated and monitored, the business entity would be losing more than it is gaining. A sound internal control system serves to ensure order in an entity so that business objectives are achieved while employing the right personnel and operations are managed in accordance with company policies. Management is concerned with strategic decisions, but, even a well-thought out strategy will fail, if operations are going awry. Management want assurances that the right personnel have been employed; that operations are being carried out orderly in line with company policies; that fraud has been eliminated or can be detected; that the entity is complying with regulations and laws; that authorisation is sought before any transaction; that fraud risk is mitigated or eliminated. These assurances can only be given if a sound internal control system is enshrined in an entity.