Corporate Compliance Report

Satisfactory Essays
In the wake of high-profile corporate scandals and subsequent regulatory legislation, reporting internal controls has become a requirement. These requirements have led to organizations viewing risk management as an area of vital importance. Best practice organizations have for years looked to the Committee of Sponsoring Organizations of the Treadway's (COSO) Internal Control Integrated Framework as the standard to build a solid system of internal controls (Managing Risk, 2003). Formed in 1985, COSO is a voluntary and independent private sector organization that sponsored the National Commission of Financial Reporting. The National Commission was made up of various industry representatives who studied the underlying causes that lead to fraudulent financial reporting. The committee developed recommendations for public companies, independent auditors, regulators, and educational organizations, which are designed to improve "the quality of financial reporting through business ethics, effective internal controls, and corporate governance"(COSO, n.d., 1). Recognizing the need for organizations to evaluate risk management efforts, COSCO developed a framework for Enterprise Risk Management (ERM) that Morrison Management Specialists and other companies can use to establish strong internal controls.

Enterprise Risk Management

ERM is a controlled approach to help management identify and manage uncertainties and reach certain risk objectives. COSO's ERM framework concentrates on the development of a strategy that includes the importance of a risk and internal control "consciousness" throughout an organization. COSO's framework introduces eight key principles for ERM: "internal environment; objective setting; event identification; risk assessment; risk response; control activities; information and communication; and monitoring" (Managing Risk, 2003, p. 2). COSO's framework also includes four objectives categories; these are: strategy; operations; financial reporting; and compliance. COSCO intended this framework to be an effective tool for keeping stakeholders and board directors informed about organizational procedures and processes. The framework could also be used to help an organization respond to uncertainties that will help directors to measure how well their organizations are managing its own risks.

The most crucial aspect of ERM is the establishment of effective internal controls with respect to organizational risk. COSO's objective of internal controls is to establish a set of conditions within an organization to minimize the potential risk of misuse, loss, waste or fraud in financial reporting.
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