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Sarbanes Oxley : COSO : Internal Controls
New Guidance recognizes need for “Evaluators” of Internal Control
By
H. C. Warner
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H. C. Warner
President
Internal Control Institute
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Every day seems to bring darker news of the looming financial crisis. It is time to take a different approach to the development of internal control structures in business organizations. When the term “internal control” is mentioned people think of one of three different definitions. The first definition is that is supports financial statements; the second that it relates to an activity such as payroll; and the third is that it is a process. Which definition is correct?
The first definition is mostly related to public accountants and the financial standards that must be followed to produce auditable financial statements. The public accountants include an opinion statement in their financial report on the adequacy of internal control which focuses on internal controls supporting the preparation of financial statements.. The second definition regarding business activities also relates to auditors as they audit an activity such as payroll. In the audit they look at the internal controls over of the flow of transactions thru a business activity. The third definition is the one That COSO developed to define the term. Their definition of internal control is that it is a “process” designed to provide reasonable assurance regarding the achievement of business objectives over efficiency and effectiveness of operations, reliability of financial operations and compliance with applicable laws and regulations.
In today’s worldwide business environment it is the COSO definition that should be used by business organizations. The Sarbanes-Oxley act while not specifically endorsing the COSO definition of internal control indirectly uses their definition. Note that the COSO definition preceded the Sarbanes-Oxley Act. The COSO definition has developed a “framework” for internal control which is included with the definition. The Sarbanes-Oxley requires a “framework, and the SEC has only endorsed one framework and that is the COSO framework.
In June 2008, COSO released additional guidance in its exposure draft document: Guidance on Monitoring Internal Control Systems. In this guidance COSO recognizes the need for an organizational structure that considers the roles of management and the board in regard to monitoring, and the use of “evaluators” with appropriate capabilities, objectivity, and authority. “Evaluators can be specially trained professionals, separate from operations (e.g., internal auditors), or people within various areas of the organization who, as part of their normal job function, are responsible for overseeing processes or monitoring the operation of certain controls. Evaluators require adequate skills, knowledge and authority, as well as an understanding of the risks that the controls are intended to manage.”
Who will be these evaluators of tomorrow and who is in the best position to provide them the needed training and recognition? A new internal control professional is needed who is trained under internal control definition number three. Currently only one organization provides the full range of training, examination and certification of internal control specialists. That organization is the Internal Control Institute. Visit the website address below to view the available online training and learn how to become a Certified Internal Control Specialist (CICS) or a Certified Internal Control Professional (CICP) who can assess, design, implement and manage internal control systems.
H. C. Warner
President
Internal Control Institute
H. C. “Pete” Warner is the President of the Internal Control Institute™. Pete has over 30 years of real world experience. He has served as Chief Audit Executive for two Fortune 500 companies and has also been a Director of Accounting for a Fortune 500 Company.
Pete participated in the original promulgation of the “Standards for the Professional Practice of Internal Auditing” and has also served as a Member of a Board of Directors and Chairman of an Audit Committee. He has been a multiple term member of the Florida Institute of Certified Public Accountants Accounting Principals and Auditing Standards Committee.
A researcher, writer and lecturer, Pete coordinated the first definitive study of Systems Auditability and Control and has published articles in the Florida CPA Today, The Internal Auditor and The Journal of Accountancy. He holds a BS in Accounting from the State University of New York and MS in Management from Rollins College, Winter Park, Florida.
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