My family bought a new car that is bigger, more powerful and as fuel efficient as our old one. Yet when winter socked us with two feet of snow earlier this year, we still got stuck when trying to get up our driveway. The big, new, powerful Q7 was not the silver bullet for a safe arrival we had expected.
Why is it we always hear of how buying X can help us achieve Y, yet we seldom hear of how buying X will help us achieve Y, but will not help us with Z.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) states in one particular report that internal control “is not a panacea.” While COSO defines internal control as a process affected by three levels of personnel, designed to provide reasonable assurance in achieving objectives in three categories, it also mentions two beliefs about top-of-the-line internal controls that are unwarranted.
Unwarranted belief number one: “internal control can ensure an entity’s success.
“This is an unwarranted belief as market conditions, changes in government regulations, and incompetent employees cannot be changed by internal control.
The good news though, is that with a solid process of internal control in place, the three levels of personnel are in a position to be proactive or to be able to react quickly.
Unwarranted belief number two: internal control can ensure the reliability of financial reporting and compliance with regulations.
This is an unwarranted belief because an internal control system can only provide “reasonable, not absolute, assurance to management regarding achievement of a company’s objective.” Mistakes happen. Human judgment is not always 100%. Plus, management can override the system. “Internal control can HELP ensure reliable financial reporting,” not guarantee it.
Internal control is imbued with visibility. If you consider the five interrelated components, 1) Control Environment, 2) Risk Assessment, 3) Control Activities, 4) Information and Communication, and 5) Monitoring, visibility as to the processes, measurements and results, is key.
SkyStem’s ART builds visibility into the account reconciliation and month end close processes. From dashboards to live status updates, ART puts those working to establish effective internal control in the driver’s seat of a powerful and efficient machine that clearly spells out X, Y and Z.
You can find the COSO Internal Control – Integrated Framework report here.
ART helps you get in control of internal control. See how.