Public Exposure

Internal Control–Integrated Framework
September 2012

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Table of Contents
• • • Project Overview Updates to Internal Control-Integrated Framework Overview of Internal Control over External Financial Reporting: A Compendium of Approaches and Examples Public Exposure Process

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Project Overview

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Why Update What Works
Original Framework (today) COSO’s InternalControl–Integrated Framework (1992 Edition)

Fundamental concepts relating to effective internal control

Changes in business, operating, and regulatory environments

Internal and nonfinancial reporting objectives

Enhancements to ease use and application

Formalizes Principles Underlying Components

Updates Context

Expands Application

Updated Framework

COSO’s Internal Control–IntegratedFramework (Draft, 2013 Edition)

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Project Timetable

Assess & Survey Stakeholders

Design & Build

Public Exposure & Assess

Finalize

2010

2011

2012

2013

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Project Participants
COSO Board of Directors

PwC Author and Project Leader

COSO Advisory Council
• • • • • • • • AICPA AAA FEI IIA IMA Public Accounting Firms Regulatory observers Others (IFAC, ISACA,others)

Stakeholders
• Over 700 stakeholders in original Framework responded to global survey during 2011 • Over 200 stakeholders commented on proposed updates to original Framework during first quarter of 2012 • Additional public exposure of proposed publications during fourth quarter of 2012

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Project Deliverables: Internal Control-Integrated Framework
• Consists of three volumes:
−Executive Summary − Framework and Appendices − Illustrative Tools: Assessing Effectiveness of a System of Internal Control

• Sets out:
− − − − Definition of internal control Requirements for effectiveness Categories of objectives Components of internal control

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Project Deliverables: Internal Control over External Financial Reporting: A Compendium
• Approaches and Examples illustratehow principles are applied in preparing financial statements • Considers changes in business, operating, and regulatory environments during past two decades • Is relevant for variety of entities – public, private, not-for-profit, and government • Is consistent with the updated Framework

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Updates to Internal Control–Integrated Framework

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Internal Control-Integrated Framework

•First published in 1992 • Gained wide acceptance following financial control failures of early 2000’s • Most widely used framework in the US • Also widely used around the world

Original COSO Cube
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Fundamental concepts of internal control are timeless
• Geared to achievement of objectives – operations, reporting, and compliance • A process – ongoing tasks and activities • Effected by people –actions taken at every level of the organization • Able to provide reasonable assurance – but not absolute assurance • Adaptable to entity structure – flexible in application • Five components of internal control – requirements to achieve effective internal control
– Control Environment – Risk Assessment – Control Activities – Information and Communication – Monitoring Activities

10Updates intended to ease use and application
What is not changing...
1. Retains the core definition of internal control 2. Retains the five components of internal control 3. Retains the requirement of five components for an effective of system of internal control 4. Retains important role of judgment in designing, implementing, and conducting internal control, and in assessing effectiveness ofinternal control

What is changing...
1. Formalizes fundamental concepts underlying the five components as principles 2. Considers changes in business, operating, and regulatory environments 3. Expands financial reporting objective to include other important forms of reporting 4. Provides additional approaches and examples relevant to operations, compliance, and non-financial reporting objectives...