COSO Internal Control Framework

Lesson Exercise Solution

The Committee of Sponsoring Organizations of the Treadway Commission created a framework to evaluate internal controls.

This framework, often referred to as COSO, lists five components of any internal control system:

Control Environment - The ethical values, integrity, and tone at the top of the organization.
Risk Assessment - The process of identifying and analyzing risks that could prevent the organization from achieving its objectives.
Control Activities - The actions, policies, and procedures that help ensure management directives are carried out.
Information and Communications - The process of identifying, capturing, and communicating relevant information to the right people, at the right time, to support the functioning of internal control.
Monitoring - The process of evaluating the effectiveness of internal control performance over time.

Oscar corp., a recent audit client, is trying to understand the bill for a recent audit.

The only relevant information you've discovered is as follows:

An auditor noticed that the board of directors maintains independence from managers.

Which component of the COSO framework applies?

The behavior of the top managers "sets the tone" for everyone else.