COSO Framework and Financial Reporting Risks
Core of an Effective ICFR Program
What is the COSO Framework?
COSO (Committee of Sponsoring Organizations of the Treadway Commission) developed the most widely adopted framework for internal controls, including ICFR. The 2013 COSO Framework focuses on achieving three key objectives:
- Operations – Efficient and effective functioning
- Reporting – Reliability of financial reporting
- Compliance – Adherence to laws and regulations
To achieve these, COSO defines 5 Components and 17 Principles that must work together to create a robust control environment.
The 5 Integrated Components of COSO
|
Sl. No. |
Component |
Description |
|
1. |
Control Environment |
Sets the tone at the top—ethics, governance, accountability |
|
2. |
Risk Assessment |
Identifies, evaluates, and prioritizes financial reporting risks |
|
3. |
Control Activities |
Policies and procedures to prevent, detect, or correct errors |
|
4. |
Information & Communication |
Ensures relevant, timely reporting and communication of risks |
|
5. |
Monitoring Activities |
Ongoing evaluation of control effectiveness through audits and reviews |
Each component is supported by detailed principles that drive action and accountability.
Examples of Key Financial Reporting Risks
|
Risk Type |
Example |
|
Accuracy Risk |
Manual interest income miscalculation |
|
Completeness Risk |
Revenue from certain branches not recorded |
|
Cutoff Risk |
December expenses recorded in January |
|
Valuation Risk |
Incorrect fair value for investment properties |
|
Fraud Risk |
Fake vendor invoices for non-existent services |
These risks threaten the integrity of financial statements and are exactly what ICFR is designed to control.
Why COSO Matters in the UAE
- SCA Regulations: COSO is the benchmark framework for ICFR implementation under SCA Decision no. 2/RM of 2024.
- Audit Preparedness: UAE auditors will base their ICFR opinions (private in 2024, public from 2025) on COSO principles.
- CBUAE Reporting for Insurers: ICFR under COSO is embedded in 2025 reporting requirements.
- Corporate Tax Compliance: COSO helps companies meet tax record-keeping and intercompany documentation requirements under Federal Decree - Law No. 47 of 2022.
How COSO Helps Organizations
- Aligns internal control systems with financial reporting goals
- Enables consistent and comparable audits
- Supports board-level governance and audit committee oversight
- Creates a common language between finance, risk, and compliance teams
- Builds long-term trust with investors and regulators
Our Role in COSO based ICFR Implementation
At Crowe, we help organizations:
- Map COSO principles to their existing controls
- Identify gaps and implement corrective actions
- Train finance and risk teams on applying COSO
- Prepare documentation for regulatory or audit reviews
Coming Next Week:
Next week, we take a step-by-step journey through the ICFR lifecycle, from scoping and process mapping to testing and final certification. Learn how to build a structured, sustainable ICFR program.
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