Abstract
The concept of international managing framework has appeared comparatively recently, yet one of its specimens, the COSO Framework, has already gained quite a weight in a range of fields, including company management, HR management, etc. Though the framework has been developed comparatively recently, it has already gained significance due to its efficacy. Despite the fact that establishing cooperation between the departments of a major company is extremely complicated, the COSO Framework creates the premises for the fast and efficient information exchange. Predisposed by its logical structure and the link between its five key components, the efficiency of the framework makes the latter an essential part of any major transaction carried out in a company.
Introduction: Internal Control System and Its Significance
The very phenomenon of an internal control system is often defined as a system that facilitates efficient execution of control and various checks that are carried out on different management levels (The updated COSO internal control framework: Frequently asked questions, 2013, p. 2). The definition of an internal control system (ICS) provided above, in fact, already nails down the significance of the phenomenon in question in a very precise manner. It is obvious that the ICS can be seen as an attempt to arrange the processes within an organization in an orderly fashion, at the same time allowing for the cooperation between the departments, thus, making it possible for the latter to coordinate their actions with the ones of the rest of the company. Herein the significance of the ICS lies. Unless the framework had been suggested, creating a well-structured system of the company’s processes would be impossible.
More to the point, the ICS allows for a successful implementation of corporate governance. Apart from increasing the success of the company’s external and internal operations, the specified management system allows for directing different departments of the company remotely. Thus, the compliance with the corresponding rules, both the state regulations and the ones of the company, is achieved. One could argue that the given system does not allow for the maximum flexibility in decision making due to the corporate governance enhancement; however, the ICS offers an impressive chance to rearrange different elements of a company’s internal and external processes so that they could contribute to the maximum output.
The last, but definitely not the least, the better risk management should be listed among the elements that make the ICS framework significant. According to the recent researches, in the age of globalization, it is especially important to choose the right risk management strategy. Due to a vast number of liabilities, a company must be able to reduce the number of risks to the minimum, which the ICS facilitates (McNally, 2013, p. 8).
Therefore, the concern of auditors and accountants for the system in question is quite justified. With the introduction of the ICS into the company’s management system, one will be capable of shaping the current financial strategy so that the number of risks and, therefore, the possible financial losses should be reduced impressively (Dataline: COSO issues the updated Internal Control-Integrated Framework and related illustrative documents (No. 2013-09), 2013, para. 1). The auditors, in their turn, will be capable of monitoring not only separate departments but also the entire company, thus, checking the efficacy of the adopted strategies as the elements of a single entity, thus, increasing the chances for spotting an inconsistency in the company’s operational processes.
Five Components of the COSO Internal Framework and Its Significance
One of the most successful and innovational IC systems, the COSO Framework allows for an excellent rearrangement of the company’s key processes and components, as well as the perfect coordination of the work of different departments and consistency in financial transactions.
Control environment, the first element to mention, allows for tying in the audit procedures and the ethical values of the company, thus, creating the environment, in which the cult of personal and professional responsibility emerges. By controlling the environment, in which the company operates, one is capable of designing an appropriate risk management strategy.
Consequently, such component of the COSO system as risk assessment must be brought up. By setting the company’s objectives on a company-wide and a process levels, one can identify the key risk factors through a careful analysis of the environment and, thus, shape the current risk management strategy. Monitoring may be considered redundant since the control environment mentioned above already presupposes that the internal and external processes of a company should be supervised. However, the control environment only provides the conditions for the monitoring process, whereas the process itself should be carried out consciously and in accordance with the corporate plan.
The last, but definitely not the least, information management is the key to creating a successful COSO Framework. As it has been stressed above, in the era of information technology, quality of communication being the key to the efficient operation of a company, it is imperative that the data concerning the company’s internal processes and the market that it exists it should be available instantly. With the application of a proper information management strategy, such as the principle of shared knowledge, it is possible to facilitate the environment for the rest of the COSO elements to thrive in.
The importance of the COSO Framework is clearly beyond any possible doubt. Without COSO, it is impossible to provide impeccable compliance with the existing laws and regulations, report on the key financial transactions and managerial activities, and facilitate the economy and efficiency of the company’s key operations.
Main Changes of the Updated Framework: The 2013 Innovations
Though the COSO system already created the premises for reinventing the principles of company governance, in 2013, its updated version was introduced. Due to a rapid evolution of information technologies, the COSO system needed to be upgraded in accordance with the key innovations in the IT field. The key changes of 2013 have been predetermined by the globalization process and include reliance on modern technology and the so-called transition approach (DeLoach & Kawashima, 2013, p. 3), which make the process of shaping the company’s financial and management strategies faster.
Conclusion: Means to Address the COSO Framework in Internal Control Systems
The COSO Framework can be implemented in the ICS by “updating the Internal Control-Integrated Framework” (Committee of Sponsoring Organizations of the Treadway Commission (COSO), 2014, para. 2), as the developers of the COSO Framework suggest. Representing an adequate attempt to rationalize the internal control processes and create a single standard for ICS to comply with, the COSO Framework presupposes that a much more powerful control should be executed over the organizational processes. Therefore, the COSO Framework can be addressed in ICS with the help of more efficient coordination between different departments of a company.
The latter goal, in its turn, is attained relatively easily after a successful introduction of a more coherent information management system in the company’s processes. Once the cooperation between the departments and tough quality control are provided within a company, the demands listed by the COSO Framework can be met.
Reference List
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2014). Web.
Dataline: COSO issues the updated Internal Control-Integrated Framework and related illustrative documents (No. 2013-09) (2013). Web.
DeLoach, J. & Kawashima, K. (2013). COSO 2013: What’s new, what’s changed, why does it matter and other FAQs. Web.
McNally, S. (2013). The 2013 COSO Framework & SOX compliance. Web.
The updated COSO internal control framework: Frequently asked questions (2013). Web.