Question

Describe a) what you believe to be the most important COSO component; and b) why.

Answer 1

a) According to the COSO Internal Control Integrated Framework, internal control consists of five integrated components namely, control environment, risk assessment, control activities, information and communication, and monitoring activities.

Of the above mentioned five COSO components, control environment is the most important component.

b) The component of control environment is the basis for the overall system of internal control since it consists of the expectations of the board of directors and the senior management for standards of conduct within the organization in respect of values, ethics, integrity, to be adhered at all levels. It is also thus known as the tone at the top. The control environment defines and sets the standards, processes and structures necessary for implementing and carrying out internal control across all levels in the organization. It defines the organizational structure, the assignment of authority and responsibility and various performance measures. It is thus the most important component as it pervades all the other components.