Elements of COSO framework
COSO framework is one of the warehouse management approach tools. It is used to maintain the efficiency and effectiveness of inventory procedures in an organization. The paper is going to outline five components of the COSO framework and how they help in achieving their objectives. Companies can take various initiatives to improve their performance. The framework has basic concepts of improving the organizational goals as well as improving all the management levels. The essay is also going to address the best measures on integrating the COSO framework within any given organization.
Elements of COSO framework
Control environment
It is the attitude of the staff, management, and company in regards to the internal controls. The framework determines if the people working in the organization take internal controls as a serious factor or they ignore it. The component evaluates the client’s environment within which the business is operating. It helps to determine the effectiveness of the internal control system and evaluate previous audits if they contain errors or they are ok. Leaders should adhere to top-notch ethical standards of the firm, oversight by those in the board of governors, and support employees who portray impeccable skills at work. The objectives of the COSO framework is to ensure efficiency and effectiveness of operations in the organization. The element helps to achieve the objective by letting the management be responsible for all the operations going on the in the firm. When employees are given support in performing their roles, they will initiate the smooth running of operations as they will deliver at their respective dockets. When leaders are committed and adhere to high ethical standards, they will build an important organizational culture spearheading effectiveness and efficiency in the operations.
Risk assessment
The management team of a given organization should evaluate whether they have identified possible risks that may affect the smooth running of the organization. The team should implement control measures to detect and prevent errors that may occur at a later stage. It includes the leadership team identifying risks in transaction expenses as well as revenue that is not recorded. It forms a solid basis on how to handle and manage the risks in an organization. It also determines the loopholes where the risks are likely to emanate from and come up with strategies to mitigate at a tender stage. The nature of transactions has an impact on the reputation of an organization. The risk assessment element is going to help COSO achieve their objectives within an organization as they determine any loopholes that may put the organization at risk. The management will devise methods of sealing all the risks and enhance the smooth running of operations within the organization. For any firm to run it errands effectively, then they should detect errors such as the reputation of the organizations and transaction costs, which may go unnoticed, but they have a great impact.
Control activities
Control activities are the procedures and policies that ensure all the directives from the management are carried out. For example, successful organizations such as Coca-Cola have ensured all the amount exceeding $6000 should have a minimum of two signatures. The rusk mitigation procedures should be at all levels of the organization. Such measures help COSO to achieve their objectives through following up ways to mitigate risks at every operational stage in an organization. When all the activities are controlled, the organization will effectively and efficiently compete in the world market as they can control internal activities. Companies should improve their performance using these elements. The procedures act as a watch dog in determining where to follow the rules in all operation stages of an organization.
Information and communication
When communications are generated from the management team and later communicated to other departments enhances the decision-making process. All the policies an organization communicates to different levels of the organization helps to control the processes within the organization internally. An organization has to understand information technology, communication systems accounting, and the processes that occur internally. Such operations include maintaining accounting records and safeguarding the company assets as well as backing up the data. The management team has to tag all the computers and periodically identifying the stickers, as it is ideal for locating all computers and seeing if they are present. Only authorized employees are supposed to access computers only from their departments and the accounting puzzle which suits them. Data backups are done frequently and kept in different locations in case of fire or theft. All communications are integrated with other COSO frameworks to achieve their objectives. It is an essential element because it helps to channel out communications within an organization and the decision making process. When all the employees are aware of the policies the organization is operating in, it will help to effectively and efficiently improve the performance. Internal control creates customer relationships as they understand what the organization entails. When employees are tasked to operate the computers within their organization, it becomes easier to trace the accounting part within the department.
Monitoring and review
The component encompasses knowing how the management team controls and monitors its operations. Internal controls have no meaning when mangers do not make changes and monitor their controls effectively. For example, when a manager discovers one of the computers is missing, then he or she has to put better methods in place to ensure computers will be safe and it will not get lost. It entails using all the other four components as the organization can timely identify a challenge and give feedback. Monitoring and review help COSO to achieve its objectives in improving company performance by monitoring important operations within the organization.
What do you feel an auditor would most be concerned with during an IT audit?
The auditor’s main objective is to audit the internal control of the finance department of any given organization. The auditors will be concerned with the effectiveness of the organization’s internal control system by the stakeholders. The internal control system determines the weakness that exists in the quest to improve the performance of an organization. He or she evaluates the material weakness in the internal control system as compared to financial reporting. It is because financial reporting may have misstated figures.
Strategies in Integrating the COSO framework to Walmart
Walmart is an American retail shop struggling with balancing the inventory and production in the warehouse.
Strategies
Since Walmart is a retail shop, balancing inventories is a step to improving the performance of the organization. We should conduct interviews with Walmart stakeholders such as team leaders and analyze their performance. It will help to determine the deficiency of the company and apply the best COSO component, such as monitoring and review. Such a strategy helps to learn the business process and the risks the organization may face.
Document checking
Since the COSO framework is about improving the company performance, checking the documents will help to determine where the firm has failed in keeping records. Inventories and production monitoring will put Walmart to understand and provide values on how they have been performing and improving their competitive advantage.
Direct observation
Integrating of COSO framework in Walmart involves observing all the risks and communication breakdown affecting the decision making process. One of the most effective ways of determining a challenge is through observation. Integrating the system to Walmart will entail looking at what Walmart is doing in the wrong way and correcting it using the framework.
In summary, COSO is an initiative that was constituted five private sectors that were dedicated to providing leadership skills through the development of framework and guidance on risk management, enterprising, internal control, and fraud cases. There are several ways that a company can improve its performance by focusing on the internal control of the company’s controlling activities and also implementing the new technology to increase efficiency and effectiveness in every area. Internal control is a process managed by the company to help in achieving the operation and reporting activities according to the company’s rules. The internal optimization is also necessary because it describes the rules and procedures used by the company to improve its management effectiveness. It is also useful in pointing out risks that the company might be facing in the future, affecting its financial performance.