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Internal Controls Framework to Be Updated

Posted 7:56 PM by

As many accountants work through their education, they learn about the Committee of Sponsoring Organizations of the Treadway Commission (COSO)'s framework for internal controls. This framework has been the guiding foundation for creating internal control policies and procedures in the outstanding majority of business throughout the world. The framework that COSO created was originally issued in 1992. Businesses and the way that business is done have evolved significantly since 1992 as they are more complex and tend to run at a faster pace today than they did in 1992.

With the ever-changing world of business in mind, COSO has decided that it is time for an update to the framework that has guided many accounting professionals for the past 19 years. COSO chairman David l. Landsittel sums up the need for an update best with the following statement:

"Issued in 1992, the COSO Internal Control-Integrated Framework has become the most widely used internal control framework in the world. The key concepts proposed in our original framework are timeless, yet the changes we have seen in the business and operating environments have driven the need for this update. The update should allow organizations to more effectively utilize the framework to develop and maintain systems of internal control in support of their long-term success"

The five components of the COSO framework (control environment, control activities, risk assessment, monitoring and information and monitoring)  as well as the definition of an internal control will remain the same. The most significant change comes from codifying the internal control concepts in the original framework into 17 principles along with their supporting attributes. It is hoped that this structure will help organizations to apply their judgment in managing risk and improving their performance in the ever changing and complex business environment.

COSO has asked for practitioners to submit commits about the exposure draft of the updated framework. The exposure draft in full can be found on COSO’s site. Comments can then be submitted here. The deadline for comments is March 31, 2012.

About the Author
Justin Hayes is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group. Justin works with clients to help ensure accurate financial reporting, keeping an eye on their bottom line, and helping them avoid risk and maximize efficiencies. Connect with him on LinkedIn.

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