Treadway Compliance Paper

Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some

The Sarbanes-Oxley Act consists of 11 titles that set significant requirements and consequences for non-compliance in terms of transparency of financial reporting and accountability of leadership for publicly held companies. The Act established the Public Company Accounting Oversight Board (PCAOB), which is an independent, nongovernmental and non-profit organization created to oversee the audits of public companies. The Act also set requirements for the audit committee, the CEO and CFO in regards to certifying financial statements, prohibits loans to executive officers, require real-time disclosure of information, changed the deadline for insiders to report trading in company 's securities to within two business days of the transaction, provides for the protection of whistleblowers, and imposes sanctions and penalties on violators of the provisions of the Act (“Corporate scandals, the Sarbanes-Oxley Act of 2002 and equity prices,” 2007, p. 83). All of these provisions are used to help improve accuracy and reliability of corporate disclosures by ensuring transparency, neutrality, and accountability in reporting financials, in order to protect investors.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) was first implemented in 1985 to support the National Commission on Fraudulent Financial Reporting, as well as working with auditors and the Securities and Exchange Commission (SEC). The committee’s objective was to produce thought leaders for Enterprise Risk Management (ERM), fraud determent, and internal control and financial reporting (ICFR) in 2004; COSO introduced the ERM-Integrated Framework. (COSO, 2015) SOX 404, mandates the use of an internal control framework by the management of publicly traded entities. Since 1992, multiple companies have used COSO’s framework. In May of 2013, COSO updated its Internal Control-Integrated Framework, updating was in response

COSO established an internal control framework is placed into policies, rules, and regulations by numerous businesses and organizations to enhance control over their activities in order to move in a direction to achieve established goals and objectives. The five private sectors making up COSO include the Institute of Management Accountants, The American Institute of Certified Public Accountants, the Institutes of Internal Auditor, and the Financial Executives International. The Theadway commission formed

SOX established the Public Company Accounting Oversight Board (PCAOB) to regulate the audit industry to oversee accounting professionals who provided independent audit reports for publicly traded companies (SEC). Key responsibilities include: registering public accounting firms and establishing audit, quality control, ethics, independence, and other standards relating to public company audits (SEC). Conducting inspections, investigations, and disciplinary proceedings of registered accounting firms, as well as enforcing compliance with Sarbanes-Oxley as a whole (SEC) also falls under PCAOB’s responsibility. SEC penalties have increased considerably in the recent years in addition to increased levels of enforcement activities.

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The Valuation Implications of Enterprise Risk Management Maturity by Mark Farrell and Ronan Gallagher seeks to prove that firms who integrate the Enterprise Risk Management (ERM) process tend to enhance their value by recognizing risk. This article states that enterprises will be subject to many risks and that the goal of ERM is to “model, measure, analyze, and respond to these risks in a holistic manner” (p. 625). As defined by the Casualty Actuarial Society (2003) ERM is “the discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risks from all sources for the purpose of increasing the organization’s short and long-term value to its stakeholders”. The value of a firm was found by analyzing the ERM maturity assessment score by using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), which is commonly known and esteemed. This was done to provide evidence that companies who incorporate the ERM process tend to add value to their company. This is important because as the article states, the premise of ERM has only been in existence for just over 10 years, and therefore research is extremely limited in regards to how to measure the full effect of ERM on a firm. This article seeks to discuss the value of ERM and how it has evolved, the data and model used to confirm the value of ERM, and then it concludes with the observed results.

establishment of the Treadway Commission. The Treadway Commission and COSO In 1985, the National Commission on Fraudulent Financial Reporting, more commonly known as the “Treadway Commission,” was established with the sponsorship of the American Institute of Certified Public Accountants,

The purpose of this project is to identify measures of internal control that ensures compliance with Sarbanes Oxley Act Section 404 and how the costs of compliance may be used to add business value for shareholders. The key requirements of SOX include definition, documentation, implementation, and assessment of effective controls to ensure the integrity of corporate financial information and the prompt reporting of material events that may affect the financial performance of the firm (Moeller, 2007). A survey conducted by Audit Analytics showed that internal control over financial reporting weaknesses from 2004 to 2005 improved, but still had companies with material weaknesses in both years (Bedard, 2007). This shows there is a need for more identification for continuous improvement. Threats to accounting systems come from various sources and can destroy the relevance and reliability of financial information, if ignored (Beard, 2007). Because IT governance defines the IT structuring measures, and monitoring framework, it should include business value (Robinson, 2005) and, since corporate governance drives and sets IT governance (Lainhart IV, 2000) the corporate governance is required for compliance with SOX Section 404. According to (Peterson, 2004), IT governance is the key to realizing IT business value. With the high costs of compliance that include the possible needing additional software and hardware, consultant engagements, additional

Enterprise Risk Management (ERM) started to steady down at the end of 1990s and has been mostly recognized as the expectations for the effective management and corporate governance. (Fraser and Simkins, 2016) This report divided into 4 parts base on the understanding of ERM and Marks & Spencer (M&S) 2016 Annual report. Firstly, a literature review of ERM to determine the appropriate comprehension of ERM in M&S. Secondly, this report introduced basic situation of M&S Corporation to establish the basis of risk management. Thirdly, an analysis of key risks is the core part of this report. Fourthly, this report analysed the difficulties associated with managing data upon risk intelligence, which needed to pay attention to. All

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management (ERM) – Integrated Framework (2004) is a guideline for managing risk and understanding internal controls. The eight components of the COSO ERM Framework are as followed: internal environment, objective setting, event identification, risk assessment, control activities, information and communication, and lastly, monitoring. Here we define/describe these eight components:

Enterprise risk management is a process used by a company to proactively identify the risks that it faces and to manage those risks.

In light of the fraud scandals that took place in 2001 and 2002 companies all over the world have been introduced to a new system to help incorporate corporate governance, risk management, and the requirements made by the SOX. That new system is known as Enterprise Risk Management (ERM). The ERM system has been suggested to be the new system to help companies predict risk and help achieve their overall objectives (Arena, Arnaboldi, & Azzone, 2011). The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has defined “ERM as a process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives” (Arena, Arnaboldi, & Azzone, 2011, & Baxter, et al., 2013). In addition, the COSO identifies eight unified components that consist of the internal environment, objectives setting, event identification, risk assessment, risk response, control activities, information and communication, and monitoring (Arena, Arnaboldi, & Azzone, 2011). Companies who implement an ERM system and follow these eight components help to guarantee the accomplishment of the company’s overall objective across their different organizational levels.

Using Enterprise Risk Management (ERM) techniques to assess risks for the risk management program involves managing risks together as an overall risk program. It differs from traditional risk management that looks at risks individually and manages each risk separately. By integrating the traditional risks that are insurable risks into an ERM program, aids the organization in implementing a strategic risk management program that encompasses the hazard risks along with financial risks, operational risks, and strategic risks into a comprehensive risk management program for the bank.

Risk management has become a very important task of enterprise operation. In the process of the development of risk management, it needs a guide to lead enterprises grow up sustainably. Therefore, establishing risk management frame work becomes an inevitable trend. In 2004, COSO issued the enterprise risk management –integrated framework on the base of internal control- integrated framework. This framework make the enterprise risk management get on a new level.