COSO framework (The Committee of Sponsoring Organizations) is an integral name in the world of risk management. With the explosion of cyber threats, and exponentially increasing uncertainty from multiple aspects, organizations were in dire need of an integrated risk management framework that could navigate them through the intricacies and uncertainties and that’s how COSO has come into existence.
It all started when five private sector organizations formed a joint initiative to fight corporate fraud. These organizations were later renamed the COSO, and their first COSO enterprise risk management framework was established in 1992 and accepted by the SEC.
COSO is dedicated to helping organizations’ performance by developing thought leadership that improves internal controls for corporate governance, business ethics, corporate risk management, fraud, and financial reporting.
COSO’s internal control framework defines internal control as a process, performed by the board, senior management, and other personnel of an entity, designed to provide reasonable assurance regarding the achievement of objectives related to operations, reporting, and compliance.
COSO framework is widely known among enterprises regarding establishing risk management framework and companies across different domains and sizes have adopted this to improve their internal controls and processes. Not all businesses mandatorily need to embrace the COSO framework but it has undeniable benefits for organizations.
With minor changes in 1994 and 2013, the COSO integrated framework continues to serve as a benchmark for organizations seeking to improve internal audit performance and the overall health of enterprise-wide risk management.
The COSO report continues to provide a solid basis for organizations to make improvements in the following areas:
Let’s deep dive into the benefits to understand the importance of the COSO framework.
Over the past 20 years, countless organizations have failed due to ineffective risk management and related internal controls. According to the COSO board, the updated framework provides companies with more effective internal controls, enabling organizations to better mitigate risk and have the data they need to support informed decision-making. As a leader, you can leverage the 2013 framework to assess how you can improve the effectiveness of your internal controls as well as the overall efficiency of your organization.
In today’s digital age, businesses face an onslaught of fraudulent activity, cybersecurity threats, and other risks. According to the University of Maryland, a cyberattack happens every 39 seconds, and on average, companies lose $188,400 annually due to cybercrime.
The COSO framework will help organizations put themselves on the right path to face and manage the staggering number of cyberattacks.
In a comparative analysis of a study by Robert Half and the Financial Executives Research Foundation, the research arm of Financial Executives International (FEI), more than 50% of executives surveyed in the United States and Canada said they expect that their organization’s compliance costs will increase or stay the same over time.
According to COSO, by correctly implementing the 2013 framework, companies can streamline processes, implement controls, enhance internal measures and reduce compliance costs.
Now more than ever, investors examine the performance of public companies through the lens of revenue and profits. The key advantage of adopting the 2013 COSO framework is that you have more effective risk management controls. This becomes all the more important for companies that are on the way to getting listed on the stock market or that have already done the IPO.
A COSO report states, “For a public company, stronger corporate governance should translate into stronger business results and increased shareowner value.” As organizations transition to the 2013 framework, they can promote their commitment to integrity, ethical values, and effective internal controls to potential investors.
Poor corporate governance and monitoring of business performance have led to countless corporate failures and lower shareholder values. A fundamental goal of COSO is to improve the corporate governance function within organizations that oversee safety, risk, and compliance programs to ensure adherence to policies, objectives, and laws.
Most of the time, people think that incidents occur because of employee negligence or error. The truth is, most workplace incidents occur because of inadequate/poor management controls. Your proactive efforts to implement effective risk assessments can prevent most incidents.
The COSO framework can help organizations improve their effectiveness in managing fraudulent activities. The framework also enables organizations to implement effective and stringent controls that prevent fraud in the first place, detect fraud as soon as it occurs, and respond effectively to incidents of fraud when they do occur.
The COSO framework is extremely crucial for enhancing business operational efficiency and establishing stringent internal controls. But, due to its inherently complex nature and add-on intricacies, you would require a helping hand from the industry experts to seamlessly integrate this across your organization.
VComply supports the COSO framework and helps organizations design and implement internal controls so they can focus on legal compliance and improving organizational effectiveness. It provides a core library with a pre-built compliance framework and change-control capabilities that enable companies to identify, assess, manage, and monitor their risks.
Key highlights of VComply’s product capabilities include:
VComply’s central library has predefined controls and supports a reusable risk register. You can implement workflows to streamline the risk management process. Its workflow capabilities allow you to prioritize risks with heat maps, reports, and dashboards.
VComply’s COSO enterprise risk management solution visualizes the risk landscape of your organization. You can map controls to risk, develop new controls, and monitor the effectiveness of controls in real-time. Lastly, you can track and implement remediation processes across the organization.
Using the COSO framework, businesses have more prescriptive internal controls in place to reduce risks and make smarter business decisions. Implementing the framework allows your organization to build and maintain internal controls that are effective, leading to greater reliability, relevance, and timeliness.
To summarize, internal controls based on the COSO framework give companies a reasonable level of assurance that it is conducting business more openly, morally, and in compliance with industry regulations.
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