Question

1. What’s the five key steps listed by COSO’ s of a good judgement process.?

According to Drucker: What is the ethics of prudence?

Answer 1

What Is The COSO Framework?

The COSO model defines internal control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance of the achievement of objectives in the following categories:

• Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with applicable laws and regulations”

In an “effective” internal control system, the following five components work to support the achievement of an entity’s mission, strategies and related business objectives.

1. Control Environment

• Integrity and Ethical Values
• Commitment to Competence
• Board of Directors and Audit Committee
• Management’s Philosophy and Operating Style
• Organizational Structure
• Assignment of Authority and Responsibility
• Human Resource Policies and Procedures

2. Risk Assessment

• Company-wide Objectives
• Process-level Objectives
• Risk Identification and Analysis
• Managing Change

3. Control Activities

• Policies and Procedures
• Security (Application and Network)
• Application Change Management
• Business Continuity/Backups
• Outsourcing

4. Information and Communication

• Quality of Information
• Effectiveness of Communication

5. Monitoring

• Ongoing Monitoring
• Separate Evaluations
• Reporting Deficiencies

These components work to establish the foundation for sound internal control within the company through directed leadership, shared values and a culture that emphasizes accountability for control. The various risks facing the company are identified and assessed routinely at all levels and within all functions in the organization. Control activities and other mechanisms are proactively designed to address and mitigate the significant risks. Information critical to identifying risks and meeting business objectives is communicated through established channels up, down and across the company. The entire system of internal control is monitored continuously and problems are addressed timely.

The Ethics of Prudence:

To be prudent means to be careful or cautious. It is a rather unusual philosophy for an ethical approach, but admittedly it has some benefits to it. When I first became an Air Force general, we were sent to a special course for new generals. During this course we were given lectures and advice by senior military and civilian leaders. I do not recall whether what was said on this subject was said by a senior civilian official, or by a senior general, but it struck us as pretty good advice. "Never do anything you wouldn’t want seen on the front page of The Air Force Times," he said.

Drucker gave a somewhat similar example. He said that Harry Truman, at the time a U.S. Senator, gave this advice to a general officer witness before his committee in the early years of World War II: "Generals should never do anything that needs to be explained to a Senate Committee — there is nothing one can explain to a Senate Committee."

Drucker thought that this approach may be pretty good advice for staying out of trouble, but it is not much of a basis for ethical business decision making. For one thing, it doesn’t tell you anything about the right kind of behavior. For another there are decisions that a leader must take which are risky and which may be difficult to explain, especially if things go wrong. But, they may nevertheless be the correct decisions to take.