Question

List the 5 components of the COSO internal control model. Explain each components and discuss how it affects the rest of the internal control model.

Answer 1

Five Components of the COSO Internal Control Model

• Control Environment
• Risk Assessment
• Control Activities
• Information and Communication
• Monitoring

Control Environment : It serves as an umbrella for the other four components. Without a good control environment, the other 4 components are not likely to be affective. It consist of the actions, policies, and procedures that reflect the overall attitudes of top management, directors and owners of an entity about internal control.

Risk Assessment : It is management's identification and analysis of risks to the preparation of financial statements in conformity with appropriate accounting standards. Management's risk assessment differs from but is closely related to the auditor's risk assessment. The company must be able to identified the risks that need to be managed and assessed more closely.

Control Activities : These are policies and procedures, in addition to those included in the other four control components, that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives.

Information and Communication : The purpose of the entity's information and communication system is to initiate, record, process, and report the entity's transactions and to maintain accountability for the related assets.

Monitoring : It deal with the ongoing or periodic assessment of the quality of internal control by management to determine that controls are operating as intended and that they are modified as appropriate for changes in conditions.