The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently announced the release of its discussion document: Guidance on Monitoring Internal Control Systems. The guidance which is extensive and goes into great depth applies to the internal control objectives over financial reporting, as well as the objectives related to effective operations and compliance.
According to COSO Chairman Larry Rittenberg, Ph.D., “This guidance more fully develops the monitoring component of COSO’s Internal Control – Integrated Framework, and is appropriate for organizations of any size or structure to improve the quality of their internal controls systems for multiple business purposes, but especially those dealing with the reporting requirements under the U.S. Sarbanes-Oxley Act of 2002, Section 404.”
Of the two documents, the second, Internal Control - Integrated Framework Executive Summary, is an excellent summary of the five interrelated components of effective internal control (of which monitoring is the 5th component.) The five are: control environment; risk assessment; control activities; information and communication; and monitoring. COSO makes the point that while entities of different sizes may implement them in different ways, they are applicable to business of all sizes, large and small. The framework set out by COSO is worth reviewing at least annually by any organization and then choosing how to apply the framework, particularly for those where internal controls are not mandated by SOX.
COSO seeks feedback on the concepts in this discussion document until Oct. 31, 2007; they want to know if they are clearly articulated and if you agree with the conclusions reached. They also want to receive examples of innovative approaches you have taken in monitoring the effectiveness of internal control. They will consider these observations in the development of their final guidance. Accompanying the release of the discussion document is access to a Web-based feedback portal on the COSO Web site at www.coso.org/publications.htm.
The second phase of the monitoring project, scheduled for release after comments are received on this discussion document, will provide examples, case studies, and tools to assist all organizations in implementing effective and efficient monitoring. COSO’s intent is to release an exposure draft of the full implementation guidance later this year and to release the final guidance in the first quarter of 2008.
I encourage you to read both documents and consider how your equity compensation technology fits in with your overall internal controls and compliance objectives.
