Question

In what ways did Koss management fail in its responsibilities relating to internal control over financial reporting? Note: Please be brief but be specific—consider organizing your response in accordance with the components (and principles) of COSO’s 2013 Internal Control: Integrated Framework (which can be found at www.coso.org).

Answer 1

Koss management fails in its responsibilities relating to internal control over financial reporting in the following ways :-

- segregation of duties - koss management fails to segregate the duties as most of the major duties or control lies in few hands. Koss also delegate the check issuing authority to Sachdeva which in term cheats the company as there is no independent or outside check.

- reconciliation of reports - CEO of koss also fails to reconcile the financial reports or bank statement on frequent periods. He also didnt appoint anyone from outside to have a check.

- lack of internal audit function - Koss also didnt have an internal audit function may be due the fact that it is an small company but they could have outsourced this function atleast once in a year.

COSO's 2013 components :-

i) Control environment - it is an set of standards, practices, structure that provides basis of carrying out internal control. Senior management should be ethical, proper assignment of authority are some factors of effective control environment. But koss management fails in this part as there is no proper assignment of authority and senior managament is not a person of integrity and ethical values.

ii) Risk assessment - it invloves a dynamic and iterative process to identify analysing the risk. However, Koss CEO didnt even check reconciliation of reports on selected intervals and also fails to appoint any outside party to assess the risk.

iii) Control Activities - it os the actions set up by the policies and procedures to ensure the management to eliminate risks. It contains the activity of segregation of duties but Koss management fails to proper segregate the duties as only some persons having control over major activities.

iv) Information and communication - these are the crucial part as right information communicated is the must for a successful business but Koss doesnt have this system effective as for many years wrong information were provided to everyone.

v) Monitoring - It means evaluating the current scenario of the company but koss CEO never had interest in it.