ArchivesAccounting Archives — C. Lynn Northrup, CPA, CPIM

Monitoring Internal Control

COSO issued new information and direction on monitoring internal control during January 2009 in a three volume publication titled Guidance on Monitoring Internal Control. Monitoring of internal control is performed through application of ongoing evaluations and separate evaluations to ascertain whether other components of internal control continue to function as designed and intended. These evaluations facilitate identification of internal control deficiencies. The deficiencies then need to be communicated to appropriate officials responsible for taking corrective action and where appropriate to higher levels of management and the board of directors.It is important to realize that business risks change over time. The internal control system must be capable of determining that the internal control system continues to be relevant and able to address any new risks. Monitoring should address requirements for revisions in the design of controls as risks change. It also provides assurance regarding the ability of the internal control system to contain risks at an acceptable level in order to provide for effective and efficient operations.

Monitoring follows a risk based approach in evaluating risks linked to achieving operational objectives. It is important to establish a monitoring foundation that includes procedures for evaluating risks, assessing controls, and reporting the results together with any required corrective action steps.

One of the primary elements of the monitoring includes establishing an effective tone at the top of the organization giving a high priority to an effective internal control system. Effective “tone at the top” ensures that the management team and the board of directors are supportive of the evaluation process. Successful monitoring of internal control requires the selection and utilization of evaluators who have a baseline understanding of internal control. They also will have the suitable capabilities, resources, and authority to conduct a meaningful assessment of the internal control system.

Since the enactment of the Sarbanes-Oxley Legislation I have developed multiple training programs dealing with assessment of internal control in addition to my book, Profitable Sarbanes-Oxley Compliance. Please feel free to contact me with your internal control questions and to discuss how to create and implement an internal control monitoring program.

The Reality of IFRS

I am sure many CPAs have seen IFRS and heard there was going to be a convergence from Generally Accepted Accounting Principles (GAAP) to international accounting standards. But how many of them realize the magnitude of what lies ahead? I was involved in teaching SOX and internal control standards under Section 404. This gives me a pretty good idea of the effort required to make the shift. Since this web site and blog is geared to providing current and cutting edge information for businesses and CPAs it made sense to get on the IFRS band wagon sooner rather than later.Why all the fuss? Well IFRS accounting standards have been adopted by 113 countries and by 2011 it will be the standard used by 150 countries. The United States is immersed in global business and investors need to have the ability to evaluate investments around the globe. This makes a pretty good cased for a single set of globally accepted accounting standards. As was the case with SOX, CPAs are not yet prepared to shift to IFRS. Because of the global implications, CPAs in the United States will need to be capable of preparing and interpreting financial statements using IFRS.

The education process will be massive. It will impact investors, CPAs, and other specialists such as actuaries, and professional associations. Comprehensive education programs will be needed across the board. The AICPA has launched an initiative to help educate and pave the way for 2010 when conversion will likely be a reality.

In drafting this post the potential impact of the transition became starkly real. Colleges and universities will need to revise their curricula to accommodate the new standards. The CPA exam will need to be revised. Many CPAs could find themselves in situations where clients will demand adoption of IFRS. Those CPAs who make the effort to educate themselves will be on the winning end of the conversion game. My prediction is there will be more unprepared accountants versus those who make the leap.

This post is just the beginning and a way of sounding the alarm. I will be busy in the months ahead developing training material. Plus, we will be offering regular and current information on this site to help with the education process.  I’m looking forward to the journey, so sign up for my RSS feed and newsletters.  Let’s saddle up and enjoy the ride.