FINANCE, REPORTING, and INTERNAL CONTROL
FOUNDATIONAL ELEMENTS COMMON TO ALL PUBLIC AND PRIVATE ENTITIES
"What gets measured gets managed."
FINANCE, REPORTING, and INTERNAL CONTROL ARE KEY PIECES TO THE OVERALL ENTITY PUZZLE AND MISSION
FINANCE, REPORTING, and INTERNAL CONTROL LEVERAGE COMPONENTS KEY TO THE SUCCESS OF THE FUNCTIONS AND ENTITY
Awareness and management of key risks and rewards to entity
Key Performance Indicators - KPI (lagging)
Key Risk Indicators - KRI (forward looking and enable forecasting)
Key Finance, Reporting, and Internal Control components (Risk Sub-Categories - see below)
TRANSPARENCY, ACCOUNTABILITY, and ASSURANCE
BEGIN WITH INTEGRITY OF FINANCIAL REPORTING and INTERNAL CONTROL
Publicly traded companies are required to implement Sarbanes-Oxley Act Section 404 requiring an annual internal control report focused on financial reporting.
FINANCE, REPORTING, and INTERNAL CONTROL RISK and DUE DILIGENCE SUB-CATEGORY CONSIDERATIONS
INTERNAL CONTROL AS DEFINED IN THE
2013 COSO* INTERNAL CONTROL - INTEGRATED FRAMEWORK
“a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.”
COSO INTERNAL CONTROL - INTEGRATED FRAMEWORK
COSO issued the original Internal Control - Integrated Framework (ICIF Framework) in 1992. The Framework was updated in 2013 and consists of 17 principles supported by 5 components of internal control.
INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR)
LEVERAGED AS A BASE FOR RISK MANAGEMENT
Strong internal control over financial reporting can establish the confidence, integrity, and assurance to be leveraged as a base for integration of:
Enterprise Risk Management (ERM)
Integrated Risk Management (IRM)
Strategic Risk Management (SRM)
Utilizing risk management frameworks including:
(a) Rules Required. The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 to contain an internal control report, which shall--
(1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and
(2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.
(b) Internal Control Evaluation and Reporting. With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.
THE WORLD BANK VIEW OF TRANSPARENT
In a World Bank feature story titled "Effective and Transparent Financial Reporting is Good for Business" dated October 1, 2013 they stress the importance in transparency in financial reporting:
"Businesses - both large and small - are competing for credit and capital, while banks and other financial institutions are now much more cautious in their investment decisions.
In this environment, therefore, it is increasingly important for businesses to be financially transparent and for governments to establish a sound regulatory environment for corporate financial reporting."