Committee of Sponsoring Organizations, COSO|Legit essays
Posted: February 7th, 2023
Comments:
The Committee of Sponsoring Organizations, COSO, provides some examples of implementation
of good internal control. The link, login, and password for COSO is given below.
http://aaahq.org/COSO/Content (Links to an external site.)
login: aaa71159
Password: ANkh53K
The example that this problem comes from is in this:
COSO
Control Environment
Principle 2. The board of directors demonstrates independence from management and
exercises oversight for the development and performance of internal control.
Example: Interacting with Auditors
Problem Statement:
Sara Greenburg is the chair of the audit committee of Seaworthy Solutions, a marine construction services
provider. In accordance with the audit committee charter, she arranges for the committee to meet quarterly
with the external auditor to discuss a wide range of issues such as audit scope, testing plans, internal
control over external financial reporting, quality of financial reporting, and audit findings and
recommendations. She is responsible for coordinating the audit committee’s evaluation of the external
auditor.
Required:
1. Look at the COSO example for
Control Environment/Principle 2/ Example: Interacting with Auditors.
What considerations does Sara Greenburg base her evaluation on?
2. For this internal control issue, describe the objective, type or component or control, and entity level
(1) Objective: operations, reporting, or compliance
(2) Type or component of control: control environment, risk assessment, control activity, information
and communication, and/or monitoring. Also state whether it is prevention or detection of a problem.
(3) Entity level: entity, division, operating unit, or function
3. To push the issue to an extreme that I hope you and I never need to deal with, here is an enforcement
release from the SEC. https://www.sec.gov/litigation/litreleases/2019/lr24678.htm
The SEC also alleges that [some executives] misled MiMedx’s outside auditors, members of MiMedx’s
Audit Committee, and outside lawyers who inquired about these transactions.
How does Sara protect her reputation and document her professionalism?
XXXXXX aaa71158
XXXXXX 8Yw9KuZ
Comments
Accounting usually reports for an entire entity. The entity might be a department or a division or the entire organization.
Nevertheless, the accounting results are sometimes taken to be informative about individual performance. Your project for the
class relates to whether the CEO compensation depends on accounting income. If the CEO compensation does, in fact, depend on
accounting income, then the accounting income is for the entire organization and not the productivity of the CEO as an individual.
There is some omniscience with this problem that we would not have in ordinary circumstances.
Problem Statement
Team production.
One division of a company is composed of three people working in a team with total productivity of $400. The accounting system
appropriately measures the division profits as $400. Let’s call the three team members Diana, Mary, and Florence. Suppose
we’ve chosen these individuals because among all combinations of individuals they produce the most team productivity.
Now replace Diana by the next best alternative person from outside the existing team, and let’s say that total output drops to $350.
Production with Diana is $400. Production with the next best alternative to Diana is $350. Having Diana is better than the next
best alternative by $50. Diana should be able to use this as bargaining power to extract the lion’s share of this incremental
productivity. Diana should be able to bargain that the team should be willing to pay at least the value of $49.99 to Diana and the
other two team members are still better off by the net $0.01 remaining of added productivity. By giving Diana the entire $50, at
worst the remaining team members should be indifferent to whether Diana or the next best alternative is on the team.
Suppose that something similar is true for Mary and Florence. When Mary is replaced by the next best alternative, productivity
drops to $350. When Florence is replaced by the next best alternative, productivity drops to $350. As a result, they each have
bargaining power over the team for the worth of about $50.
Here’s what I see at this point; out of $400 of productivity, each team member has bargaining power to extract $50 from the team,
for a total of $150. This leaves $250 of productivity remaining that is accounted for by the team organization and not inherently
able to be appropriated by any individual currently in the team.
Required:
1. The way we have set the problem so far, there is a core level of profitability of $250 that is not attributable to any individual,
and cannot be bargained for by any individual. The $250 is attributable to three people working as a team. How should the $250
be distributed among team members? This is a product of your own reflection. There is not a correct answer.
2. Accounting tends to operate by collecting information about what has happened and not about next best alternatives or
opportunity cost. Do we ever collect information about next best alternatives? Is it important?
3. My example isn’t the only way the numbers could work out. It’s possible that replacing each person in turn would cause
productivity to drop by $200. This gives the collected team members bargaining power over a total of $600 when total
productivity is only $400. What happens then?
SOLUTION
of its framework, including the internal control system, risk management, and control activities. However, these examples are not exhaustive and organizations are encouraged to tailor the implementation of the COSO framework to their specific needs and circumstances. COSO’s framework is widely recognized and used by organizations around the world as a tool for improving their internal control systems and overall governance.
The COSO framework provides a comprehensive approach to managing risk and improving internal control, but its implementation should be adapted to the unique needs and circumstances of each organization. It is widely used as a best practice in internal control and governance.
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