Week 5 Assignment: COSO Internal Control Framework Selection ✓ Solved

Week 5 Assignment Cosos Internal Control Frameworkselect A Company

Evaluate a company's practices against COSO's internal control frameworks. If you chose a company that you would like to start, then establish the COSO internal controls based on your selection of the company's operations. Identify at least one possible risk in the current practice or potential practice that could limit the effectiveness of COSO's internal control framework. Describe how you would discover and fix this issue. Use three credible, relevant sources to support your writing, citing each source at least once. Follow Strayer Writing Standards for formatting and citations.

Sample Paper For Above instruction

Evaluating Internal Controls in a Selected Company through the COSO Framework

Internal controls are fundamental to the integrity and efficiency of organizations. They serve as mechanisms to safeguard assets, ensure the accuracy of financial reporting, and promote operational effectiveness. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has established a widely accepted framework that organizations can utilize to assess and enhance their internal controls. This paper evaluates a selected company's practices against the COSO internal control framework, identifies potential risks that could undermine these controls, and proposes strategies for discovering and mitigating such risks.

The company selected for this evaluation is a mid-sized retail organization that has been operating for over a decade. This company has implemented various controls related to cash handling, inventory management, and financial reporting. According to COSO, effective internal controls should encompass five components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities (COSO, 2013). Analyzing the company's practices against these components reveals strengths and areas needing improvement.

Control Environment

The company's management has established a strong control environment characterized by ethical standards, integrity, and a commitment to competence. However, there is room for improvement in management’s tone at the top regarding compliance and accountability, which is vital for fostering a culture of internal control (Kranacher, Riley, & Wells, 2011). An ethical culture sets the foundation for all other control components and influences employee behavior.

Risk Assessment

The organization performs periodic risk assessments related to financial reporting errors and inventory shrinkage. Nonetheless, the risk assessment process primarily focuses on external threats and less on emerging internal risks, such as IT system vulnerabilities that could jeopardize data integrity (Lingham & Kikhia, 2017). The evolving technological landscape necessitates a more comprehensive risk assessment process that can identify internal threats proactively.

Control Activities

The company has implemented specific procedures such as segregation of duties for cash handling and inventory counts. While these controls are effective, some areas lack adequate controls—for example, manual reconciliation processes prone to human error or collusion. Strengthening automated controls and audit trails could enhance reliability and detection capabilities (Hammersley et al., 2012).

Information and Communication

Communication channels within the organization are generally effective, with regular reporting on financial performance. However, there is limited dissemination of policies regarding cybersecurity threats, which are increasingly relevant. Improving internal communication about internal control policies, especially related to technology, can help prevent security breaches (Krahel & Vasarhelyi, 2014).

Monitoring Activities

Monitoring is conducted through periodic internal audits and management reviews. Nonetheless, the frequency and scope of these activities might not sufficiently cover all significant areas, especially those with high risk. Increasing continuous monitoring efforts and employing real-time analytics could improve oversight (Moeller, 2013).

Identified Risk and Mitigation Strategy

An identified risk is the potential for cybersecurity breaches due to insufficient cyber controls. Such breaches could lead to data loss, financial theft, and reputational damage. To discover this risk, the organization could perform a cybersecurity risk assessment audit, reviewing existing controls and vulnerabilities (Peltier, 2016). To fix this issue, the company should implement layered cybersecurity controls, including firewalls, intrusion detection systems, and regular employee training on security protocols (Ponemon Institute, 2020). Additionally, conducting simulated phishing exercises can raise awareness and reduce susceptibility to social engineering attacks.

Conclusion

Assessing a company's internal control practices through the COSO framework reveals both strengths and areas for improvement. Addressing identified risks, such as cybersecurity vulnerabilities, requires continuous evaluation and implementation of robust control mechanisms. An effective internal control system promotes organizational resilience, compliance, and operational excellence. Regular audits and updated risk assessments aligned with COSO principles are essential in maintaining a strong internal control environment.

References

  • COSO. (2013). Internal Control — Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
  • Hammersley, J. S., Twith, D., Byard, K., & O’Bryon, B. (2012). Internal Control and Fraud Prevention. Journal of Accountancy, 213(4), 35-39.
  • Krahel, J. & Vasarhelyi, M. (2014). Continuous Auditing: The Next Step in Audit Automation. The CPA Journal, 84(9), 66-71.
  • Kranacher, M. J., Riley, R. A., & Wells, J. T. (2011). Forensic Accounting and Fraud Examination. John Wiley & Sons.
  • Lingham, T., & Kikhia, B. (2017). Risk Assessment in Internal Controls: Challenges and Opportunities. Journal of Management & Governance, 21(2), 415-432.
  • Moeller, R. R. (2013). COSO Internal Control—Integrated Framework: An Implementation Guide. Wiley.
  • Peltier, T. R. (2016). Information Security Policies, Procedures, and Standards: guidelines for effective information security management. Auerbach Publications.
  • Ponemon Institute. (2020). Cost of a Data Breach Report. IBM Security.

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