问题详情

TheCommitteeofSponsoringOrganisations(COSO)oftheTreadwayCommissionisanAmericanvoluntary,privatesectororganisationandisunconnectedtogovernmentoranyotherregulatoryauthority.Itwasestablishedin1985tohelpcompaniesidentifythecausesoffraudulentreportingandtocreateinternalcontrolenvironmentsabletosupportfullandaccuratereporting.Itisnamedafteritsfirstchairman,JamesTreadway,andhasissuedseveralguidancereportsovertheyearsincludingimportantreportsin1987,1992and2006.
In2009,COSOissuednew‘Guidanceonmonitoringinternalcontrolsystems’tohelpcompaniestighteninternalcontrolsandtherebyenjoygreaterinternalproductivityandproducehigherqualityreporting.Thereport,writtenprincipallybyaleadingglobalprofessionalservicesfirmbutadoptedbyalloftheCOSOmembers,notedthat‘unmonitoredcontrolstendtodeteriorateovertime’andencouragedorganisationstoadoptwideranginginternalcontrols.Itwentontosaythat,the‘assessmentofinternalcontrols[can]...involveasignificantamountof...internalaudittesting.’
Afteritspublication,thebusinessjournalist,MarkRogalski,saidthatthelatestreportcontained‘yetmoreguidancefromCOSOonhowtomakeyourcompanylessproductivebyburdeningitevenmorewithnon-productivethingstodo’referringtotheinternalcontrolguidancethe2009reportcontains.Hesaidthattherewasnoindustrysector-specificadviceandthata‘one-size-fits-all’approachtointernalcontrolwas‘ridiculous’.Hefurtherarguedthattherewasnolinkbetweeninternalcontrolsandexternalreporting,andthatinternalcontrolsareunnecessaryforeffectiveexternalreporting.
Anothercommentator,ClaireMahmood,wroteareplytoRogalski’scolumnpointingtotheviewsexpressedinthe2009COSOreportthat,‘overtimeeffectivemonitoringcanleadtoorganisationalefficienciesandreducedcostsassociatedwithpublicreportingoninternalcontrolbecauseproblemsareidentifiedandaddressedinaproactive,ratherthanreactive,manner.’ShesaidthatthesebenefitswerenotindustrysectorspecificandthatRogalskiwasincorrectinhisdismissalofthereport’svalue.ShealsosaidthatalthoughprimarilyconcernedwithgovernanceintheUSA,thebestpracticeguidancefromCOSOcouldbeappliedbycompaniesanywhereintheworld.ShesaidthatalthoughtheUSA,whereCOSOisbased,isconcernedwiththe‘rigidrules’ofcompliance,theadviceoughttobefollowedbycompaniesincountrieswithprinciples-basedapproachestocorporategovernancebecauseitwasbestpractice.
Required:
(a)Distinguishbetweenrules-basedandprinciples-basedapproachestointernalcontrolsystemcomplianceasdescribedbyClaireMahmoodanddiscussthebenefitstoanorganisationofaprinciples-basedapproach.(7marks)
(b)MrRogalskiisscepticaloverthevalueofinternalcontrolandbelievesthatcontrolsmustbeindustry-specifictobeeffective.Required:Describetheadvantagesofinternalcontrolthatapplyregardlessofindustrysectorandbrieflyexplainthemeaningofthestatement,‘unmonitoredcontrolstendtodeteriorateovertime’.Youranswershouldrefertothecasescenarioasappropriate.(10marks)
(c)TheCOSOreportexplainsthat‘assessmentofinternalcontrols[can]...involveasignificantamountof...internalaudittesting.’Required:Define‘internalaudittesting’andexplaintherolesofinternalauditinhelpingensuretheeffectivenessofinternalcontrolsystems.(8marks)


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