How are Financial Controls Implemented?
Summary
COSO has received significant attention when referenced by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) as an example of an “internal control” system as required by Sarbanes-Oxley Act (SOX) sections 302 and 404. In this view, a financial control system of policies and procedures identifies who approves expenditures, signs checks, and reviews ledgers to accounts, as well as listing the required records and who keeps them. However, COSO also lists a third area where internal controls play a vital business role – effectiveness (reaching objectives) and efficiency (required resources) of operations. If you develop and implement an internal control system and your only financial performance objectives are to prevent fraud and comply with laws and regulations, then you are missing an important opportunity for improvement. Through Control Activities, for example, policies and procedures can also incorporate the idea of setting process objectives along with regular measurement and review, as well as creating communication channels between key departments.
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