Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework

CHAPTER ONE

What We All Share

REGARDLESS OF THE type of entity, all Committee of Sponsoring Organizations of the Treadway Commission (COSO) Framework users and auditors in the public and nonpublic sectors share a great deal in common. We broadly outline those shared characteristics here before plunging into the details of application and documentation. This will also help readers to target the specific goals they have in studying this material. Later these concepts are developed in more detail. For now they serve to overview the subject matter.

NEED FOR CONTROL CRITERIA

Early auditing literature talked about controls, primarily in terms of controls over more routine transactions, such as cash receipts and disbursements. Based on the analysis of business and accounting failures over decades of experience, it became clear that a broader view of controls was necessary to address the various management, information processing, or oversight weaknesses that so often contributed to these events. However, there was no broader framework or set of criteria against which to evaluate the effectiveness of the entity in controlling its risk of filing materially false financial information and preventing other types of fraud. The COSO Framework has filled that void.

A set of criteria is a standard against which a judgment can be made. In the United States, the internal control integrated framework ...