Common Sense Prevails

This week, the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") released its highly anticipated guidance for monitoring internal controls (see graphical overview below).  This guidance will prove very useful in helping companies improve the effectiveness of their internal controls and also increase the efficiency of their internal control evaluation efforts.  Many companies have struggled with their external auditors and regulators to find ways to lower the cost of their evaluation efforts by leveraging activities that are performed in the normal course of business.  This guidance will provide a solid basis for management to utilize in determining the best way to evaluate internal controls.  Here is a sample of activities that are specified within the guidance.

1. Periodic evaluation and testing of controls by internal audit,


2. Continuous monitoring programs built into information systems, 


3. Analysis of, and appropriate follow-up on, operating reports or metrics that might identify anomalies indicative of a control failure,


4. Supervisory reviews of controls, such as reconciliation reviews as a normal part of processing,


5. Self-assessments by boards and management regarding the tone they set in the organization and the effectiveness of their oversight functions,


6. Audit committee inquiries of internal and external auditors, and 


7. Quality assurance reviews of the internal audit department.

Much of the guidance is really common sense applied to an exercise that for years has defied common sense. To learn more about how you can streamline your control evaluation process, visit www.WheelhouseAdvisors.com.