Smaller Entities, Costs, And Reporting On Internal Control

Abstract

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently issued an exposure draft (ED) related to internal control (2005).  The document, “Guidance for Smaller Public Companies Reporting an Internal Control over Financial Reporting,” addresses internal control reporting by smaller publicly-held companies.  

Smaller organizations encounter many challenges in implementing and operating a cost-effective system of internal control.  However, such challenges can be overcome.  Standardizing controls, building them into the system, adding Audit Committee members, and sharpening the entity’s risk focus can all prove to be useful tactics.  

Other recommendations include enhanced monitoring, outsourcing some activities, and planning and organizing the evaluation of internal control.  Further, small organizations can benefit from the lessons learned from larger counterparts and can adapt an approach in which the broader components of internal control are tested prior to the final component, control activities.