Page 21 - PakistanAccountantOct-Dec2017

The internal control frameworks recognised believed that the revised COSO framework will help globally by all the stakeholders include Committee improve implementation of internal control. of Sponsoring Organisations (COSO), Turnbull and Criteria for Control (CoCo). In the context of Pakistan, the Code of Corporate Governance mandates the listed companies to While other frameworks do exist, the COSO maintain an effective internal control system. In the framework is the most widely accepted and used last few years, the corporate regulator, Securities in the world. The original COSO model released & Exchange Commission of Pakistan (SECP) has in 1992 played a fundamental role in establishing further expanded the requirement of adequate a scalable framework for internal control. Under internal control to various sectors and organisations this framework, internal control is a process such as Securities Broker, Central Depository intended to provide reasonable assurance that the Company, Stock Exchange, etc. The companies are objectives related to operations, reporting and required to select an internal control framework compliance with applicable laws and regulations and then assess and report on the design and are achieved. Though released in 1992, COSO’s real operating effectiveness of their internal control claim to fame came from the subsequent release annually. The increased attention of SECP points of the Sarbanes-Oxley Act (SOX). SOX required a to heightened significance of effective internal company to adopt a ‘suitable, recognised internal control that is aimed at enhancing confidence and control framework.’ transparency in Pakistan capital markets. The underlying concepts of the COSO framework Based on the worldwide recognition and have proven themselves over time as a solid base application, scalability, alignment with latest for the set-up and functioning of internal control in global business developments, COSO framework companies worldwide. Over a period of twenty- is considered as a world leading framework for five years, it has become the world’s most widely internal control. It is relevant to companies and acknowledged and used control model. In US, institutions of all sizes, industry and maturity. 99% of public companies have adopted the COSO Accordingly, entities in Pakistan engaged in framework. In 2014, Chinese ministry of finance developing and implementing an internal control signed an MoU with COSO to translate the COSO system may consider implanting the COSO framework in Chinese language. Further, the framework for their institution. European Union (EU) Principles of Public Internal Control are based on COSO. Moreover, the use It is likely that the implementation of internal of COSO framework in EU corporate sector is control, based on the COSO framework, will take well established. In this context, the use of COSO time and effort, both on the part of the entity’s framework by the Top 5 EU companies, namely, management and its auditor. The COSO framework Shell plc, Allianz, BNP Paribas, Total S.A. and starts with the tone at the top, and a cross-functional AXA Group are leading examples of worldwide team should be assembled to own the conversion. recognition and applicability of COSO framework. The companies may make transition with two goals in mind. First, give new controls, implemented In 2013, COSO issued the revised version of upon transition, enough time to operate so that its framework to account for the evolution in management can conclude on effectiveness; and technology and business practices in the last second, make this transition before the statutory twenty years. The revised framework is based on auditors’ come in and conduct their initial testing. It the extant five components (Control Environment, is important to remember that auditors’ cannot tell Risk Assessment, Control Activities, Information management what internal control framework to use and Communication and Monitoring Activities). – they can only audit the system of internal control However, it has introduced 17 underlying principles. that management has put in place. In COSO’s own words, the precise summary of its objectives for the revised framework is as follows: In recognition of the fact that there are other relevant frameworks available, the global approach “In the twenty years since the inception of the is not to mandate a particular framework. So is the original framework, business and operating case in Pakistan, and the fundamental idea is that environments have changed dramatically. whichever framework is used, internal control is Becoming increasingly complex, technologically more than just a compliance issue. driven, and global, at the same time, stakeholders are more engaged, seeking greater transparency It is said that “change starts when someone sees and accountability for the integrity of the systems the next step,” so, the opportunity is always there of internal control that support business decisions to be better. Internal control is an area where and governance of the organisation.” improvement adds real benefits to the operation and management of a business. Companies that Various global accountancy bodies, including elect to take the right approach will reap the International Federation of Accountants (IFAC) have rewards of reduced fraud risk, minimal financial lauded COSO’s efforts for being one of the first and reporting surprises, and sustained business foremost thought leaders in internal control. It is performance over the long term. October - December 2017 The Pakistan Accountant 19tober - December 2017 The Pakistan Accountant 19 Oc