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www.pwc.com The Updated COSO Internal Control- …

Updated COSOI nternal Control- integrated FrameworkAppendix Components,Appendix Components,principles and points of focusControl Environment organization demonstrates acommitment to integrity and ethical The board of directors demonstratesindependence from management andexercises oversight of the development andperformance of Internal 1 Components, principles and points of focusPwC23. Management establishes, with boardoversight, structures, reporting lines, andappropriate authorities and responsibilitiesin the pursuit of The organization demonstrates acommitment to attract, develop, and retaincompetent individuals in alignment The organization holds individualsaccountable for their Internal controlresponsibilities in the pursuit of Environment Principle #1 and Points of Focus Sets the Tone at the Top The board of directors and management at all levels ofthe entity demonstrate through their directives, actions, and behavior the importanceof integrity and ethical values to support the functioning of the system of internalThe organization demonstrates a commitment to integrity and ethical 1 Components, principles and points of focusPwC3of integrity and ethical values to support the functioning of the system of internalcontrol.

Integrated Framework Appendix – Components, principles and points of focus. Control Environment – Principles ... in the pursuit of objectives. 4. The organization demonstrates a commitment to attract, develop, and retain ... • Applies Relevant Expertise—The board of directors defines, ...

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Transcription of www.pwc.com The Updated COSO Internal Control- …

1 Updated COSOI nternal Control- integrated FrameworkAppendix Components,Appendix Components,principles and points of focusControl Environment organization demonstrates acommitment to integrity and ethical The board of directors demonstratesindependence from management andexercises oversight of the development andperformance of Internal 1 Components, principles and points of focusPwC23. Management establishes, with boardoversight, structures, reporting lines, andappropriate authorities and responsibilitiesin the pursuit of The organization demonstrates acommitment to attract, develop, and retaincompetent individuals in alignment The organization holds individualsaccountable for their Internal controlresponsibilities in the pursuit of Environment Principle #1 and Points of Focus Sets the Tone at the Top The board of directors and management at all levels ofthe entity demonstrate through their directives, actions, and behavior the importanceof integrity and ethical values to support the functioning of the system of internalThe organization demonstrates a commitment to integrity and ethical 1 Components, principles and points of focusPwC3of integrity and ethical values to support the functioning of the system of internalcontrol.

2 Establishes Standards of Conduct The expectations of the board of directorsand senior management concerning integrity and ethical values are defined in theentity s standards of conduct and understood at all levels of the organization and byoutsourced service providers and business partners. Evaluates Adherence to Standards of Conduct Processes are in place toevaluate the performance of individuals and teams against the entity s expectedstandards of conduct. Addresses Deviations in a Timely Manner Deviations from the entity sexpected standards of conduct are identified and remedied in a timely and Environment Principle #2 and Points of Focus Establishes Oversight Responsibilities The board of directors identifies andaccepts its oversight responsibilities in relation to established requirements board of directors demonstrates independence from management andexercises oversight of the development and performance of Internal controlAppendix 1 Components, principles and points of focusPwC4expectations.

3 Applies relevant Expertise The board of directors defines, maintains, andperiodically evaluates the skills and expertise needed among its members to enablethem to ask probing questions of senior management and take commensurate actions. Operates Independently The board of directors has sufficient members who areindependent from management and objective in evaluations and decision making. Provides Oversight for the System of Internal control The board ofdirectors retains oversight responsibility for management s design, implementation,and conduct of Internal Environment Principle #3 and Points of Focus Considers All Structures of the Entity Management and the board of directorsconsider the multiple structures used (including operating units, legal entities,geographic distribution, and outsourced service providers) to support theManagement establishes, with board oversight, structures, reporting lines,and appropriate authorities and responsibilities in the pursuit of 1 Components, principles and points of focusPwC5geographic distribution, and outsourced service providers) to support theachievement of objectives .

4 Establishes Reporting Lines Management designs and evaluates lines ofreporting for each entity structure to enable execution of authorities andresponsibilities and flow of information to manage the activities of the entity. Defines, Assigns, and Limits Authorities and Responsibilities Management and the board of directors delegate authority, define responsibilities,use appropriate processes and technology to assign responsibilities, and segregateduties as necessary at the various levels of the organization, including board ofdirectors, senior management, management, personnel, and outsourced Environment Principle #4 and Points of Focus Establishes Policies and Practices Policies and practices reflect theorganization s expectations of competence necessary to support the achievement organization demonstrates a commitment to attract, develop, and retaincompetent individuals in alignment with 1 Components, principles and points of focusPwC6objectives. Evaluates Competence and Addresses Shortcomings The board of directorsand management evaluate competence across the organization and in outsourcedservice providers in relation to established policies and practices, and acts asnecessary to address shortcomings.

5 Attracts, Develops, and Retains Individuals The organization provides thementoring and training needed to attract, develop, and retain sufficient competentpersonnel and outsourced service providers to support the achievement of objectives . Plans and Prepares for Succession Senior management and the board ofdirectors develop contingency plans for assignments of responsibility important forinternal Environment Principle #5 and Points of Focus Enforces Accountability through Structures, Authorities, andResponsibilities Management and the board of directors establish themechanisms to communicate and hold individuals accountable for performance ofThe organization holds individuals accountable for their Internal controlresponsibilities in the pursuit of 1 Components, principles and points of focusPwC7mechanisms to communicate and hold individuals accountable for performance ofinternal control responsibilities across the organization and implement correctiveaction as necessary. Establishes Performance Measures, Incentives, and Rewards Management and the board of directors establish performance measures, incentives,and other rewards appropriate for responsibilities at all levels of the entity, reflectingappropriate dimensions of performance and expected standards of conduct, andconsidering the achievement of both short-term and longer-term objectives .

6 Evaluates Performance Measures, Incentives, and Rewards for OngoingRelevance Management and the board of directors align incentives and rewardswith the fulfillment of Internal control responsibilities in the achievement Environment Principle #5 and Points of Focus(Continued) Considers Excessive Pressures Management and the board of directorsevaluate and adjust pressures associated with the achievement of objectives as theyassign responsibilities, develop performance measures, and evaluate organization holds individuals accountable for their Internal controlresponsibilities in the pursuit of 1 Components, principles and points of focusPwC8assign responsibilities, develop performance measures, and evaluate performance. Evaluates Performance and Rewards or Disciplines Individuals Management and the board of directors evaluate performance of Internal controlresponsibilities, including adherence to standards of conduct and expected levels ofcompetence and provide rewards or exercise disciplinary action as Assessment Principles6.

7 The organization specifies objectives withsufficient clarity to enable the identificationand assessment of risks relating The organization identifies risks to theachievement of its objectives across theAppendix 1 Components, principles and points of focusPwC9achievement of its objectives across theentity and analyzes risks as a basis fordetermining how the risks should The organization considers the potential forfraud in assessing risks to the achievement The organization identifies and assesseschanges that could significantly impact thesystem of Internal Assessment Principle #6 and Points of FocusExternal Financial Reporting objectives Complies with Applicable Accounting Standards Financial reportingobjectives are consistent with accounting principles suitable and available for thatThe organization specifies objectives with sufficient clarity to enable theidentification and assessment of risks relating to 1 Components, principles and points of focusPwC 10objectives are consistent with accounting principles suitable and available for thatentity.

8 The accounting principles selected are appropriate in the circumstances. Considers Materiality Management considers materiality in financial statementpresentation. Reflects Entity Activities External reporting reflects the underlying transactionsand events to show qualitative characteristics and that there are additional Point of Focus for non-financial external reporting, internalreporting, operations, and complianceRisk Assessment Principle #7 and Points of Focus Includes Entity, Subsidiary, Division, Operating Unit, and FunctionalLevels The organization identifies and assesses risks at the entity, subsidiary,division, operating unit, and functional levels relevant to the achievement ofThe organization identifies risks to the achievement of its objectives acrossthe entity and analyzes risks as a basis for determining how the risks shouldbe 1 Components, principles and points of focusPwC 11division, operating unit, and functional levels relevant to the achievement ofobjectives.

9 Analyzes Internal and External Factors Risk identification considers bothinternal and external factors and their impact on the achievement of objectives . Involves Appropriate Levels of Management The organization puts into placeeffective risk assessment mechanisms that involve appropriate levels of management. Estimates Significance of Risks Identified Identified risks are analyzedthrough a process that includes estimating the potential significance of the risk. Determines How to Respond to Risks Risk assessment includes consideringhow the risk should be managed and whether to accept, avoid, reduce, or share Assessment Principle #8 and Points of Focus Considers Various Types of Fraud The assessment of fraud considersfraudulent reporting, possible loss of assets, and corruption resulting from the variousways that fraud and misconduct can organization considers the potential for fraud in assessing risks to theachievement of 1 Components, principles and points of focusPwC 12ways that fraud and misconduct can occur.

10 Assesses Incentive and Pressures The assessment of fraud risk considersincentives and pressures. Assesses Opportunities The assessment of fraud risk considers opportunities forunauthorized acquisition, use, or disposal of assets, altering of the entity s reportingrecords, or committing other inappropriate acts. Assesses Attitudes and Rationalizations The assessment of fraud riskconsiders how management and other personnel might engage in or justifyinappropriate Assessment Principle #9 and Points of Focus Assesses Changes in the External Environment The risk identificationprocess considers changes to the regulatory, economic, and physical environment inwhich the entity organization identifies and assesses changes that could significantlyimpact the system of Internal 1 Components, principles and points of focusPwC 13which the entity operates. Assesses Changes in the Business Model The organization considers thepotential impacts of new business lines, dramatically altered compositions of existingbusiness lines, acquired or divested business operations on the system of internalcontrol, rapid growth, changing reliance on foreign geographies, and newtechnologies.


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