COSO five main elements
1. Control environment:
The foundation for all other elements, influencing the control consciousness of the people within the organization and encompassing every aspect of how the organization is structured and works.
(Translation: This is the big picture. If your control environment is healthy and is already functioning well, then sowing the seeds of compliance will be straightforward. If your control environment is sick and needs help, you are probably looking at a big change management project.)
2. Risk assessment:
The identification and analysis of risks to the achievement of the organization’s business objectives.
(Translation: In order to know your business, you need to know your risks and know them well.)
3. Control activities:
The policies and procedures that help the board and management ensure that their control decisions are carried out in relation to identified risks.
(Translation: You’ve identified your risks, your control environment is good, and now you need to set up the policies and procedures that will help senior executives make their decisions.)
4. Information and communication:
This must occur at two levels: first, the board must communicate its control objectives to all employees; and second, the IT system must capture and report pertinent information in a time frame and format that enables the organization’s board and management to carry out its responsibilities.
(Translation: Both the head and the body need to be working together. If the messages don’t get to the brain, the body will die.)
5. Monitoring:
The ongoing monitoring of internal control systems includes regular and ad hoc functional and management reviews. It should be based on risk assessment, with serious deficiencies being reported to the board.
(Translation: Procedures are not always perfect. They can have weaknesses or break down. You need to monitor them to ensure that you know when they are failing you. You are the master of your processes; they are there to serve you and not the other way around.)
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