Pub. 5 2014 Issue 1

www.wvbankers.org 16 West Virginia Banker T he Committee of Sponsoring Organi- zations of the Treadway Commission (“COSO”) issued its updated Internal Control – Integrated Framework (“Frame- work”) on May 14, 2013. This is the first update of the original Internal Control – Integrated Framework (“1992 Frame- work”) since it was issued in 1992. Implementation of the Framework will take place during a transition period that extends until December 15, 2014. COSO will consider the 1992 Framework to be superseded at the end of the transition period. The Internal Control over External Financial Reporting: A Compendium of Approaches and Examples (“ICEFR Compendium”) supersedes COSO’s 2006 Internal Control over Financial Reporting – Guidance for Smaller Public Companies. The updated Framework applies to entities of all sizes. COSO believes it is appropri- ate for businesses to continue using the 1992 Framework during the transition period, but COSO is encouraging organi- zations to begin assessing how the updated Framework will affect current internal control processes and documentation. The COSO Board has said that for external reports issued during the transi- COSO’s Updated Integrated Framework By Wesley Allen tion period, management should refer to whether it used the 1992 Framework or the updated Framework to complete man- agement’s assessment of internal control over financial reporting. The basic principles and concepts from the 1992 Framework are retained in the updated Framework, including the basic definition of internal control and the five core components of internal control. The 1992 Framework contained three cat- egories of control objectives: operations, financial reporting, and compliance. The updated Framework broadens the financial reporting objective to include reporting ob- jectives of all types. This subtle, but signif- icant, change reflects the reality of today’s reporting environment where internal and external financial, as well as non-financial, reports are required by various stakehold- ers. The organization’s system of internal control is an integral component to ensure reporting objectives are met. The updated Framework provides additional approach- es and relevant examples of operations, compliance and non-financial reporting. The most significant change in the up- dated Framework is the inclusion of 17 defined principles within the five compo- nents of internal control. The 1992 Frame- work listed or implied many of the same 17 principles. However, under the updated Framework effective internal control means that the system of internal control reduces, to an acceptable level, the risk of not achieving an objective related to one, two, or all three categories of objectives. To be effective the updated Framework requires that (1) each of the five compo- nents and relevant principles is present and functioning and (2) the five components operate together in an integrated manner. The following are steps organizations should take to begin the transition to the updated Framework: 1. Read and circulate the executive summary – The executive summary provides a high-level overview of the updated guidance. The executive sum- mary is free and can be downloaded from the COSO website. 2. Use the Illustrative Tools for As- sessing a System of Internal Control – For organizations currently using the 1992 Framework, use the Illus- trative Tools for Assessing a System of Internal Control document and perform a side-by-side comparison to