Internal Control over Financial Reporting – Guidance for Smaller Public Companies, 2006 www.coso.org
“The control environment is the foundation upon which all other components of internal control are based…and often is viewed synonymously with the ‘tone at the top.’ Research continues to provide evidence that companies perform better and last longer when a commitment to strong internal controls is made by members of top management and clearly conveyed through their actions.”
A major principle identified by COSO at the Control Environment level is Integrity and Ethical Values – “sound integrity and ethical values, particularly of top management, are developed and set the standard of conduct for financial reporting.”
Attributes of the Principle:
– Developed: Top management develops a clearly articulated statement of values or ethical concepts that are understood by key executives and the board.
– Communicated: Top management communicates its commitment to ethical values and reliable financial reporting through words and actions.
– Reinforced: The importance of integrity and ethical values is communicated and reinforced to all employees in a manner suitable for the organization.
– Monitored: Processes are in place to monitor the company’s compliance with principles of sound integrity and ethical values.
– Deviations Addressed: Deviations from sound integrity and ethical values are identified in a timely manner and are addressed and remedied by appropriate levels within the company.
Examples of Effective Ways to Achieve the Principle:
– Using company newsletter to reinforce integrity and ethics. [Ethics Awareness]
– Promoting a commitment to ethics via ethics guidelines available in hardcopy or electronically. [Ethics Code]
– Including periodic training or other formal discussions that review current and new policies related to sound integrity and ethics. [Ethics Training]
– Promoting employee participation in identifying misconduct by providing an anonymous helpline for employees to discuss potential fraud occurrences and other ethical concerns without fear of reprisal. [Ethics Hotline]