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Internal ControlIntegrated Framework

COSO’s

An Overview..Source: COSO’s Internal Control Integrated Framework

Bibi Consultingwww.bibiconsulting.com

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What is COSO?

Who are the sponsors?

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What Is Internal Control ?

“A process effected by an entity’s board of directors,management and other personnel,designed to provide reasonableassurance regarding the achievements of objectives in the following categories:

♦ Effectiveness & efficiency of operations.♦ Reliability of financial reporting.

♦ Compliance with applicable laws and regulations.”

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♦ Internal control is a process. It is a means to an end, not an end in itself.

♦ Internal control is effected by people. It’s not merely policy manuals and forms, but people at every level of an organization.

♦ Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entity’s management and board.

♦ Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

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Components Of Internal Control

♦Control Environment.♦Risk Assessment.♦Control Activities.♦ Information & Communication.♦Monitoring.

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Control Environment♦ Sets the tone of the organization.♦ The foundation for all other components.♦ It includes the integrity,ethical values and competence of

the people.♦ Reflects: management’s philosophy & operating style,the

way management assigns authority and responsibility and organizes and develops its people, and the attention and direction provided by the board of directors.

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Risk Assessment

♦Every entity faces internal &external risks.♦Every entity sets objectives.♦Risk assessment is the identification and

analysis of relevant risks to achievements of the objectives.

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Control Activities♦ The policies and procedures that help ensure

management directives are carried out.♦ They help ensure that necessary actions are taken

to address risks.♦ Control activities occur throughout the entity at all

levels and in all functions.♦ They include activities such as approvals ,

authorization,reconciliations and segregation of duties.

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Information & Communication♦ Relevant information must be identified , captured

and communicated in a form & timeframe that enables people to carry out their responsibilities.

♦ Information systems produce reports containing operational,financial and compliance –related information that make it possible to run and control the business.

♦ Effective communication must occur in a broader sense,flowing down,across and up the organization.

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Monitoring♦ Internal control systems need to be monitored.♦ Types of monitoring:

- ongoing during the course of operations.- evaluation for which the scope and frequency will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures.

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Responsibilities

Who is responsible for internal control ?

Everyone !

Board of Directors :Governance,guidance & oversight

Management : CEO is the owner

Internal Auditors: evaluate & monitor

Other personnel :information and communication

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What Internal Control Can Do♦ It can help achieve performance & profitability

targets.♦ It can help prevent loss of resources.♦ It can help ensure reliable financial reporting.♦ It can help ensure compliance with laws.

It can help an entity get to where it wants to go,and avoid pitfalls and surprises along the

way.

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What Internal Control Cannot Do♦ It cannot ensure success.♦ It cannot ensure the reliability of financial

reporting.♦ It cannot ensure compliance with laws and

regulations.Internal controls ,no matter how well designed and

operated,can provide only reasonable assurance to management regarding achievements of an

entity’s objectives.

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Limitations of Internal Control

♦ Judgement.♦Breakdowns.♦Management override.♦Collusion.♦Costs Versus Benefits.

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End of COSO Presentation

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Types of Controls

♦Preventive♦Detective♦Corrective♦Directive

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Preventive Controls♦ Are designed to discourage errors or irregularities

from occurring. ♦ They are more cost-effective than detective

controls. ♦ Examples:- Segregation of duties- Authorization- Firewalls- Passwords

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Detective Controls♦ Are designed to search for and identify errors after

they have occurred.♦ They are more expensive than preventive controls

.♦ Examples:- Reconcilaitions- Analysis - Periodic Inventory- Surveillance cameras- Audit

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Corrective Controls

♦ corrective controls are designed to restore a system to an approved/last known good state.

♦Examples:- Anti Virus software.- Adjusting entries.

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Directive Controls

♦Are designed to provide direction from management. (Actions taken to cause or encourage a desirable event to occur).

♦Examples:- Job Description- Training- Policies and procedures.