Internal Control- COSO (Corp Gov 12-16%)

Question 1

Internal Controls

Who uses the COSO framework? What is it used for?

B1-11

Answer 1

• used by management/BOD

- is used to obtain an understanding of what constitutes an effective system of internal control

Question 2

What are Internal Controls for?

B1-11

Answer 2

avoid financial reporting “CRIME”

Question 3

How does COSO framework assist management?

B1-11

Answer 3

-Effectively applying I/C within the overall org
-Determining the requirements of an effective system of I/C
-Allowing judgment
-Identifying and analyzing risks
-Eliminating redundant, ineffective, or inefficient controls
Efficient and effective operation compliance with laws

Question 4

How does COSO framework provide value to shareholders?

B1-12

Answer 4

Greater:
-understanding
-confidence
-

Question 5

What is the definition of internal controls?

B1-12

Answer 5

a process that is designed and implemented by an org’s management to provide reasonable assurance that it will achieve its compliance, operating, and reporting objectives.

Question 6

What are COSO’s framework objectives? (3)
“ORC” mnemonic

B1-12

Answer 6

Operations Objective

• -effectiveness and efficiency of ops
• -includes financial and op performance

Reporting Objective

• -“focus of COSO”
• -reliability, timeliness, and transparency

Compliance Objective
–ensure adherence to all applicable laws and regulations

Question 7

What are the 5 components of COSO framework?

R2-13

Answer 7

C- Control Environment
R- Risk Assessment
I- Information and Communication
M- Monitoring
E- Existing Control Activities

Question 8

What are the 5 principles related to the Control Environment? “C” in CRIME

R2-13

Answer 8

It is the Tone at the Top.
“EBOCA” Mnemonic

E- Ethics and integrity
B- Board Independence and oversight
O- Org structure
C- Commitment to Competence
A- Accountability

Question 9

What are the 4 principles related to Risk Assessment? “R” in CRIME?

R2-14

Answer 9

“EAR” Mnemonic

E- Event ID
A- Assess Risk
R- Respond to Risk

Question 10

What are the 3 principles related to Information and Communication?
“I” in CRIME?

R2-14

Answer 10

• obtain and use information
• internally communicate info
• communicate w/ external parties

Question 11

What are the 2 principles related to Monitoring Activities? “M” in CRIME?

R2-14

Answer 11

• performs ongoing evaluations

- report and correct deficiencies

Question 12

What are the 3 principles related to Existing Control Activities? “E” in CRIME?

R2-14

Answer 12

Select and develop:

• -control activities to mitigate risk
• -IT controls
• -policies and procedures