The Committee of Sponsoring Organizations of the Treadway

THE COMMITTEE OF SPONSORING ORGANIZATIONS OF THE TREADWAY

TABLE OF CONTENTS

APPENDICES        ii

EXECUTIVE SUMMARY        iii

INTRODUCTION         1

THE HISTORY OF COSO TO PRESENT DAY        1-2

THE REQUIRED IMPLEMENTATION OF COSO BY SARBANES-OXLEY        3

SECTION 302        3

SECTION 404        4

THE COSO INTERNAL CONTROL FRAMEWORK        4

THE METHODS USED IN UPDATING THE ORIGINAL FRAMEWORK        5

NEW COSO – SIGNIFICANT CHANGES        5

THE IMPACT OF COSO ON THE AUDIT PROFESSION        6

WORKS CITED         10

APPENDICES

FIGURE 1 – COSO’S INTERNAL CONTROL FRAMEWORK        7

FIGURE 2 – COSO’S ERM FRAMEWORK        7

FIGURE 3 – INTERNAL CONTROL PROCESSES         8

FIGURE 4 – THE PRINCIPLES OF INTERNAL CONTROLS         8

FIGURE 5 –UPDATES TO COSO’S INTERNAL CONTROL FRAMEWORK        9

EXECUTIVE SUMMARY

        This report covers the more notable parts in the history of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and its Internal Control–Integrated Framework. Included is information about the history of COSO up to present day, the required implementation of COSO by through the Sarbanes-Oxley Act of 2002, the COSO Internal Control Framework, and the modifications made to the COSO Framework, and the impact of COSO on the audit profession.

        COSO is a voluntary organization originally established in 1985 to sponsor the National Commission on Fraudulent Financial Reporting. The original intent of having COSO was to provide in depth research in managing what was perceived as three significant and interrelated subjects; enterprise risk management (ERM), internal control, and fraud deterrence.

        In 1992, COSO’s internal control-integrated framework was published and included the specific definition of internal control that covers all of the objectives important to an organization. The main objectives are five integrated components that are known to assist management in the achievement of a functional living internal control model:

• Control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring

        To start of the 21st century, there was a shocking amount of uncovered financial frauds and scandals that forced the government to quickly pass the Sarbanes-Oxley Act of 2002. Within the new legislation, there are 2 sections (section 302 and section 404) that involve COSO. Section 302 and section 404 included policies encouraging more corporate responsibility and accountability from its upper management, specifically its CEO and CFO. Independent auditors are also required to express an opinion on the effectiveness of the company internal controls as well as the financial statements.