The SEC is expecting companies to switch to the updated COSO internal controls framework by December 2014, as indicated by staff members who attended a recent meeting between the SEC and the Center for Audit Quality.
Internal controls framework updated
Back in May, COSO announced that it had released an update to its watershed document Internal Controls-Integrated Framework. First published in 1992, the original framework is seen as the standard benchmark for internal control best practices. The new edition intends to enhance the framework, making it even more relevant to the demands of the increasingly complex business environment, especially in the face of globalization and the information economy.
COSO, which is an initiative that was created as a result of the collaboration of five different industry organizations, has stated that using its frameworks could not only improve corporate governance, but also enhance an entire organization. In a report titled Improving Organization Performance and Governance, COSO illustrates how the entity's frameworks could contribute to enhancing performance and sustaining success.
Accounting and financial reporting is one area in particular that could be improved. By bolstering their best practices in this subject, companies can reduce the likelihood deficiencies will occur in their internal controls process.
Impact on the industry
The AICPA suggested that the new framework should not significantly affect companies with already effective internal control systems. But late last year, certain staff members of the U.S. Securities and Exchange Commission emphasized that the framework that COSO released in 1992 will become outdated on Dec. 15, 2014. On that date, the SEC seemed to imply that companies would have to switch to the new framework, or disclose why they had not.
When the new framework is implemented, it is expected that the auditors will become increasingly tough on internal controls. This increased attention coincides with the recent PCAOB focus on internal control testing, as indicated in the regulator's inspection reports.
The summary of the meeting between the SEC and the CAQ noted that companies will likely encounter challenges if they do not upgrade their controls processes to incorporate the new revisions.
"The staff indicated the longer issuers continue to use the 1992 framework, the more likely they are to receive questions from the staff about whether the issuer's use of the 1992 framework satisfies the SEC's requirement for a suitable, recognized framework," the meeting summary stated.
Corporate reporting professionals might benefit from benchmarking Internal Controls over Financial Reporting issues, which could provide insight into how to achieve best practices. Please contact Audit Analytics for an online demonstration or to learn more about our data sets. You can call us at (508) 476-7007 or e-mail email@example.com