U.S. Securities and Exchange Commission (SEC) registrants that use the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Framework to assess the effectiveness of internal control over financial reporting (ICFR) will transition to the updated 2013 framework for any assessment made after Dec. 15, 2014. After that date, the 1992 COSO Framework will be superseded and no longer recognized by COSO.
Leading companies are using the 2013 framework transition to enhance both the effectiveness and efficiency of their internal controls. Their goal for a successful transition is to ensure business processes and related systems of internal control are more effective at identifying problems before they occur and operate at a lower cost and with less effort.
In the May 14 press release announcing the framework, former COSO chairman David Landsittel stated that although the 1992 framework "remains fundamentally sound and broadly accepted in the marketplace, we are confident that the 2013 [framework] will bring added benefits to users."
Implementing the updated framework will affect companies in different ways, depending on how active they have been in updating their internal controls to address changes in their business environment and corporate governance, and how well companies have focused on all five of the COSO components, as opposed to concentrating on the controls activity component.
To maximize the benefit from the transition to the COSO 2013 Framework, companies should consider the following as they develop their transition plans:
* IDENTIFY THE RICH PROJECT LEADER, The transition effort project leader should be knowledgeable, have the time and organizational authority to develop, communicate and execute the transition plan. This approach will ensure that the company maximizes the benefits to business process and the system of internal controls that the updated framework was intended to realize.
* CREATE A MAP TO ASSESS EXPECTED TRANSITION EFFORTS. One of the most significant changes in the updated framework is that it codifies implicit fundamental concepts from the 1992 framework into 17 explicit principles. To assert that the company has effective internal controls, all 17 principles and five components must be present and functioning, and all five components must operate in an integrated manner. The updated framework also describes important characteristics of the principles--called points of focus.
To ensure all 17...