Question

The Treadway Commission was concerned about the fraudulent financial reporting that was occurring in the United States. Yet, numerous significant instances of fraudulent financial reporting occurred after publication of the COSO report.

Question: In the context of the five components of internal control cited by the COSO report, discuss what appears to have gone wrong in own words.(Please Note: Position and exceptions, if any, are clearly stated. Organization of the argument is completely and clearly outlined and implemented. Research selected is highly relevant to the argument, is presented accurately and completely – the method, results, and implications are all presented accurately; Theory is relevant, accurately described and all relevant components are included; relationship between research and theory is clearly articulated and accurate. Conclusion is clearly stated and connections to the research and position are clear and relevant. The underlying logic is explicit. Paper is coherently organized and the logic is easy to follow. There are no spelling or grammatical errors and terminology is clearly defined. Writing is clear and concise and persuasive.)

a) Think about the five components of control - control environment, risk assessment, control activities, information & communication, and monitoring.

Limitations on Internal Control
Monitoring the effectiveness of an internal control system should be a continuous process on the
part of both management and performance auditors. This regular scrutiny acknowledges that
an internal control system is not fail safe. Too many factors can impinge on the adequacy of the
controls. For example:
● Controls can quickly become outdated because of changing organizational conditions.
● Control activities may be strong, but the control environment or work setting may become
weak.
● Inappropriate controls may be in place. For example, an entity may be using detection
controls, designed to identify – after the fact – that errors or irregularities have occurred,
where it would have been better to adopt a prevention control designed to deter the
possibility of errors or irregularities occurring.
● Too many or too few controls may affect the ability of an agency to effectively fulfill its
mission.
● Intentional or unintentional staff deviation from prescribed controls can render a system
useless. Human factors such as boredom, personal problems, or other distractions can
result in errors.
● Inadequately trained or incompetent employees can reduce the effectiveness of controls.
● Collusion among employees or managers may nullify the internal control system.
● No internal control system can provide an absolute guarantee that errors or irregularities
will not occur. It can only provide reasonable assurance that management objectives will
be achieved. This assurance can be maintained if (a) management continuously monitors

the effectiveness of the controls in place, taking into consideration the costs and benefits
associated with those controls and (b) auditors provide independent assessments that the
control system is working.

Answer 1

given data

The Treadway Commission was concerned about the fraudulent financial reporting that was occurring in the United States.

Yet, numerous significant instances of fraudulent financial reporting occurred after publication of the COSO report.

a.)

In a "compelling" inner control framework, the accompanying five segments work to help the accomplishment of a substance's central goal, methodologies and related business destinations.

1. Control Environment

Uprightness and Ethical Values

Promise to Competence

Governing body and Audit Committee

The board's Philosophy and Operating Style

Authoritative Structure

Task of Authority and Responsibility

Human Resource Policies and Procedures

2. Hazard Assessment

Expansive Objectives

Procedure level Objectives

Hazard Identification and Analysis

Overseeing Change

3. Control Activities

Arrangements and Procedures

Security (Application and Network)

Application Change Management

Business Continuity/Backups

Re-appropriating

4. Data and Communication

Nature of Information

Viability of Communication

5. Observing

Progressing Monitoring

Separate Evaluations

Announcing Deficiencies