The objective of the documents content is to aid the service organizations in being able to attain a successful SOC 2 examination. There has been no change in the direction in that the 2017 TSC document does not define the controls a service organization must have in place in order to meet the trust services criteria. The author(s) of the web pages, not AIS Educator Journal nor AIS Educator Association, is (are) responsible for the accuracy of their content. Principle 7: Heads Up Challenges and leading practices related to implementing develops alternative control activities. Committee of Sponsoring Organizations of the Treadway Commission and the Association of Fraud Examiners. Internal communication is the means by which information is SOC 2 Report organization. Denver, CO 80202, SOC 1 Report (f. SSAE-16) The instructor used these cases as in-class individual assignments. COSO Principles: How They Align with Trust Services Criteria The COSO five components along with the 17 principles that align with the Trust Services Criteria will be described along with . Something went wrong. Performs Using Competent Personnel For the post-test, however, the difference between the graduate and undergraduate scores was only marginally different (p < 0.06) (Table 7, Panel B). In the internal auditing class (where all four cases were used), the overwhelming favorite case was the Dominic's Donuts case (56% of the students ranked the case as their favorite). and/or separate evaluations to ascertain whether the Students worked the cases in small groups in class. OF FOCUS OF The organization demonstrates a commitment to attract, For the Dominic's Donuts, we created surf shop and food truck variations. effectiveness of ongoing evaluations, and other management considerations. of Managements Directives We also want the students to start thinking about information that a manager might use to monitor the business operations (the information/communications component). As with the existing points of focus in TSP Section 100, the new points of focus may not be applicable to all service organizations and must be considered in relation to the service organizations operations. To reinforce concepts introduced through textbooks and lecture materials, the authors and participating instructors use cases extensively throughout their courses. Although it can be a challenge to use short, unstructured cases, the lack of details allows the students to creatively develop responses to the cases and fosters higher-order skills needed to confront the realities facing accounting graduates: asking the right questions, employing skills to transform various types of data, applying analytic techniques, and interpreting results (Mesa, 2019). Students received participation credit for actively contributing to their group's development of responses and for their involvement in the full-class discussion. Reflects Entity ActivitiesInternal reporting reflects the underlying transactions and events within a range of acceptable limits. She remarked that the Cost Plus World Market case was the most useful for teaching the students recognition of risk exposures. One author used the MyBank case and the Expense Reimbursement case12 in the graduate fraud examination course as in-class assignments. The organization obtains or generates and uses relevant, Determines Dependency between the Use of Technology in The analysis here looks at the four principles for the COSO risk assessment component (In this case, Principles 6, 7, 8 and 9). All clients are provided these services as part of the readiness assessment. Principle 6: Subject: Understanding the COSO 2013 Framework: Four Short Cases for Use in AIS and Auditing Courses, (Optional message may have a maximum of 1000 characters.). COSO/Institute of Internal Auditors. As previously stated, the points of focus are the key updates to the 2017 TSC document. Reflects Management's Choices - Operations objectives reflect management's choices about structure, industry considerations, and performance of the entity. We surveyed the participants and found that since the Fall 2017 semester (two years prior), 17 of the students had taken an auditing course, 27 had taken an AIS course, three had taken a fraud examination course, and two had taken an internal auditing course (Table 5, Panel B). Considers Materiality necessary to support the functioning of other components of The organization specifies objectives with sufficient clarity to Lois started with Linford & Co., LLP in 2020. Assesses Incentive and Pressures FedRAMP Compliance Certification, 1550 Wewatta Street Second Floor Denver, CO 80202. We provide the cases and the recommended responses to the cases in a separate file. Principle 6: The graduate mean increase was 0.93 points on the post-test, or a 5% mean increase over the pre-test score. PDF Audit Committee Brief - Deloitte US Principle 11 of the newly updated COSO framework contains specific guidance that organizations can use to make sure the appropriate IT controls are present and functioning. COSO Compliance & Scoring | Centraleyes Aziz Fataliyev, Internal Audit Practitioner, Do not sell or share my personal information. The organization specifies objectives with sufficient clarity to represented by the rows. internal control. 3. structures). Assesses Attitudes and Rationalizations, OF FOCUS OF Principle 4: Reflects Management's Choices - Internal reporting provides management with accurate and complete information regarding management's choices and information needed in managing the entity. The Dominic's Donuts (or a variation) case was administered the first day of class, the MyBank case near the middle of the 15-week semester, and the New Dolphin Phosphate case18 near the end of the semester. ), we encourage them to think of non-accounting information used for day-to-day decision-making (i.e., physical information, such as overtime hours per week, numbers and types of products sold by hour). Determines How to Respond to Risks, OF FOCUS OF For example, each case discussion could be worth 10 points (total of 40 points) in a 500-point course (8% of the course grade). COSO identifies five componentsof control that need to be in place and integrated into the organization's operations Principle 9: The Framework presumes that principles are relevant because they have a significant The COSO internal control framework is used widely by many public and private organizations. . Monitoring Activities. The technical storage or access that is used exclusively for statistical purposes. Defines, Assigns, and Limits Authorities and Responsibilities, OF FOCUS OF Considers Costs and Benefits, internally communicates information, Studies have shown that the transition from lecture-based to case-based learning helps students retain more knowledge and develop critical thinking and teamwork skills (Tan, 2019). Updates to this document are not described in this article; but, can be found on the AICPA website. Scores were based on the number of correct answers out of the 18 true/false questions. Feedback from the students at University of Houston Clear Lake is appreciated, and their comments contributed to the improvement of the cases. Considers the Required Level of PrecisionManagement reflects the required level of precision and accuracy suitable for user needs in nonfinancial reporting objectives and materiality within financial reporting objectives. Bonner (1999), Knechel (1992), Libby (1991), and Saudagaran (1996) encourage the use of cases in accounting education. Operations Objectives Students informally commented to their instructor that the MyBank case helped them understand why the control environment is referred to as an umbrella over the other four components of internal control. In these 15-week courses, we gave the pre-test the first day of the class and gave the post-test during a class meeting in mid-November. Control Environment Principles relating to the components and forth three categories of Since the cases are relatively short, instructors can implement them by integrating the discussion about the Fraud Triangle into the case responses developed by the students in small groups. After the initial publication of the updated COSO 2013 framework, the CSOTC issued several guides to assist the governance and audit functions in their evaluation of the effectiveness of the organization's internal control system. 1550 Wewatta Street 2023 Trust Services Criteria (TSCs): SOC 2 Audit Guidance Communicates to External Parties units, or functions, Communicates with the Board of Directors THE CONTROL ENVIRONMENT Two of the cases address the risk assessment, control activities, and information/communication components; one addresses the control environment component (explicitly addressing each of the five principles of that component); and the final case requires a fraud risk assessment, as well as identification of the system information and monitoring activities that could mitigate the identified risks. enable the identification and assessment of risks relating to xbbd```b``m wdd^&?H8U@$#d\g[?=&Fb8P? ] The MyBank case focuses on the control environment component and its related principles (15). Further, the 2013 Framework includes points of focus, which are important characteristics of the 17 principles and assist management with determining whether controls are properly present and functioning. The theory of Problem-Based Learning (PBL) posits that by researching and investigating information on their own, students will understand the material better and will retain what they learn. While about 80% of publicly traded companies are moving to COSO 2013, Bob Hirth (who currently chairs COSO) suggests that companies are still working on how to implement the framework in their business. This criteria section is included to demonstrate that the service organization is assessing risks possibly impacting their operations and putting plans in place to mitigate these risks. matters affecting the functioning of other components of A SOC 1 report has a little more flexibility in what is tested and opined on by the auditor. develop, and retain competent individuals in alignment with Provides Separate Communication Lines at various stages within business processes, and over the If you are a member of the AIS Educator Association, please go to www.aiseducators.org, sign in to your account, select the Journal menu option and the last item listed provides a secure link to Instructor-only materials. Constance M. Lehmann, Jun (Maggie) Hao; Understanding the COSO 2013 Framework: Four Short Cases for Use in AIS and Auditing Courses. Considers at What Level Activities Are Applied All of the students except one were accounting majors, and 43 of the students were graduate students. detective in nature and may encompass a range of manual The short cases we provide focus on the interaction of the components to help students see how these components combine to form a strong internal control system. Establishes Baseline Understanding The second case (Cost Plus World Market) incorporates the students' evaluation of risks with a cost/benefit analysis. Risk assessment involves a dynamic and iterative Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities Analyzes Internal and External Factors enable the identification and assessment of risks relating to The organization selects, develops, and performs ongoing A service organization should do their homework and know a little about the available criteria and if they apply to their services and system. Objectively Evaluates, OF FOCUS OF of duties is not practical, management selects and Learning objectives of the cases include requiring the students to: Practice performing a risk assessment and making recommendations to respond to the identified risks (Dominic's Donuts, Cost Plus World Market). CPAs can follow a step-by-step procedure to apply Principle 11 to IT controls. Many times this conversation helps to clear up which criteria truly are relevant to the subservice organization and should be covered in the SOC 2 examination. The Expense Reimbursement case was modified to the New Dolphin Phosphate case for data collection in the Fall 2019 semester. PDF COSO 2013 Principles and Points of Focus - University of Illinois system Assesses Changes in the Business Model and financial performance goals, and Identify non-accounting information that could be used to monitor operations (Dominic's Donuts). to adherence to laws and One non-author instructor used the Cost Plus World Market and MyBank cases in his auditing courses. The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user. establish what is expected and procedures that put policies AAA Home Top of Page . When the Committee of Sponsoring Organizations of the Treadway Commission (CSOTC) developed a potential framework, the 2013 COSO Internal ControlIntegrated Framework (COSO 2013), for the development and assessment of ICFRs at the end of 2014, the update included the 17 principles and 77 points of focus that guide management to effectively apply the framework and assess its effectiveness. Hughes (2017) points out that upper-level undergraduate and graduate accounting courses often rely upon teaching cases to help students refine their critical thinking, research, analysis, judgment, and writing skills. The only criteria that is required to be in a SOC 2 examination is the security criteria, which is also known as the common criteria. As shown in Table 7, Panel B, the undergraduates improved on questions 1 (LO4), 4 (LO4 and LO1), 5 (LO3), 6 (LO1), 15 (LO4), 16 (LO1), and marginally improved on question 17 (LO2).21 The graduates (Table 8, Panel C) improved on questions 1 (LO4) and 16 (LO1). objectives. expected standards of conduct. The points of focus have not been listed with the criteria until the 2017 update. internal control: In the Fall 2019 semester, the authors collected pre- and post-test data from two auditing sections (n = 38) that included undergraduates (n = 33) and graduates (n = 5),16 a cross-listed internal auditing section (n = 16) that included 13 undergraduates (n = 13) and graduates (n = 3), and a graduate accounting information system (AIS) class (n = 7). The organization evaluates and communicates internal control There are no right answers; we are interested in your opinion. PRINCIPLES AND POINTS OF FOCUS OF THE As part of the benefits analysis, the students consider the types of reports that could better manage and monitor inventory. reasonable assurance regarding the To formalize this process, we collected self-reported student enjoyment data during the Fall 2018 semester8 and administered pre- and post-tests to measure learning in the Fall 2019 semester. The case narrative was modified and questions 1 and 2 from the original case were changed to reflect the principles related to fraud risk assessment and the information/communication component of COSO 2013. Components; achievement of objectives relating to including business the entity. Points of Focus: for carrying out internal control across the THE MONITORING ACTIVITIES Login to COSO. We have included an example of a grading rubric in Exhibit 1 of the teaching note. and marketing and to which COSO can be divided into three key objectives: Operations, reporting, and compliance. Enables Inbound Communications Some groups completed the case in an hour and some groups took a little bit longer. Likewise, the mean post-test score for the undergraduates (13.24) was lower than the mean post-test score of the graduates (14.40). Hirth suggests that determining how much is enough to comply with COSO 2013 will continue until there is some sort of generally accepted documentation (Buchanan, 2016). We also ran a general linear model to further evaluate the effects of classification (either undergraduate or graduate) and which class they were taking in the Fall 2019 semester on their test scores (Table 9). Establishes Responsibility and Accountability for Executing Principle 5: Takes Corrective Action Objectives: Reflects Managements Choices decision making can be faulty and that breakdowns Reflects Managements Choices OF FOCUS OF PDF Implementing the updated 2013 COSO framework: Takeaways for banking and entitys board of directors, management, and To evaluate whether there were any differences in the mean agreement levels between the classes, we performed a one-way ANOVA with class as the factor. Mean Scores for Pre- and Post-Test: Fall 2019, Table 8 analyzes the differences between undergraduates and graduates on the pre-test (Panel A) and between undergraduates and graduates on the post-test scores (Panel B). Where segregation In 2014, COSO engaged PwC as the principal author of the update. The goal of utilizing these cases is to attempt to get the students to a common level of understanding of the COSO 2013 framework. Selects Relevant Method of Communication To recap, the instructor provides guidance, rather than correct answers, to encourage the development of these higher-order skills. These courses used the MyBank case and one other caseeither the New Dolphin Phosphate case or the Cost Plus World Market case. This could be due to the fact that the courses where the test was administered did not discuss the specifics about people who commit fraud (i.e., that fraudsters do not always fit a common personality profile). limitations inherent in all systems of internal control. The students worked in a small group (23 students per group) to discuss the case and submitted their written responses as a group at the end of the class. Panel C: Graduate Fraud Examination (n = 29). For example, for the principle "Demonstrates commitment to integrity and ethical . errors. There have been no changes in the trust services criteria with this latest update. 4 COSO Risk Assessment Principles of the 2013 Framework THE MONITORING ACTIVITIES management and exercises oversight of the development and The organization selects and develops control activities that Again, having the students work this case in small groups has been found to be an effective approach. We then provide evidence of the efficacy of the cases. Principle 3: For example, one principle of the risk assessment component requires the assessment of fraud risk for the organization. practical approaches and examples that illustrate how the components and principles set forth in the Framework can be applied in preparing external financial statements. Points of Focus: Present means that the components and relevant principles exist in the design and implementation of the system of internal control, and functioning means that The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released its updated Internal Control - Integrated Framework (2013 Framework)1 As is typical of most decisions like this, there is no right or wrong answer, and both the quantifiable costs (e.g., cost of the system, costs associated with placing an order) and other costs (e.g., employee reluctance to change systems) must be considered. of these objectives from across the entity are The internal auditing and fraud class participants differed significantly in their agreement with question 3 (teamwork exercise) from the undergraduate auditing class participants (who worked the case individually). Since some of the graduate students might have worked the Dominic's Donuts case and/or the New Dolphin Phosphate case in a previous semester, we modified these cases so that the Fall 2019 classes did not have overlapping cases. Performs in a Timely Manner The case is worked in small groups to encourage discussion among the students. Table 3 shows the level of agreement with the survey questions (Exhibit 1) for the full sample (Panel A) and the individual classes (Panels B-D). Ac/eY*2.OjeJiHT_(r|yvncqiOBeA;[k&""V/4\6W{.MsId d)].4@Ah%3"% 5V%H*pH achieve the objectives, and entity structure (the Below we present a summary table of how we used the cases in different courses for data collection purposes in the Fall 2018 and Fall 2019 semesters (Table 1). about COSO, visit coso.org. The other 10 auditing students were in an undergraduate auditing course. importance of internal control including In these cases, we can be included in a conversation with the client and talk through the criteria and their relevance to the service provider. In the other courses, the MyBank case was the students' favorite by 72% of the fraud examination students and 58% of the undergraduate auditing students.14. The undergraduates showed a mean increase of 1.43 points on the post-test, an 8% increase over the mean pre-test score. PDF Coso framework principles and points of focus - Weebly We suspect that these students did not closely read the survey, which asked which of the classes had been completed since the Fall 2017 semester (emphasis added). The instructor stated that the students enjoyed the cases, and he found that the Cost Plus World Market case fostered the most discussion from the students. considered relative to established risk tolerances. Principle 17: The purpose of an internal audit is to provide independent assurance of management's risk management and risk responsei.e., the third line of defense (IIA, 2016)evaluating the effectiveness of risk management and control functions (Anderson & Eubanks, 2015). Additional analysis showed that courses previously taken did not significantly affect the pre-test scores for either graduates or undergraduates.20, Results of One-Way ANOVA for Pre-Test Scores, Paired t-Tests on Pre- and Post-Test Results: Fall 2019, Panel B: Undergraduate Participants Only (n = 46). This case was adapted from Lehmann (2010). Since our students will be auditors or accountants after they graduate, they need to understand how to apply and assess the components of the COSO 2013 framework in their evaluations of a client's internal controls and the reports used for decision-making. Updates to this guide are also not described within this article; but, can also be found on the AICPA website. This change may be due to the positive effect of group learning on the motivation to learn and perception of learning (Clinton & Kohlmeyer, 2005). Search for other works by this author on: 2018 Eligibility Procedures and Accreditation Standards for Accounting Accreditation, Accounting Education: Charting the Course through a Perilous Future, American Accounting Association Committee on the Future Structure, Content, and Scope of Accounting Education, Future accounting education: Preparing for the expanding profession, Leveraging the COSO across the Three Lines of Defense. over technology to support the achievement of objectives. Business Processes and Technology General Controls In the fraud examination class, the instructor first covered the concept of the control environment and the importance of setting a tone at the top, then asked students to work as a group to complete the MyBank case. To determine a participation grade, the instructor can either collect the responses from the group scribe as a record of the participation grade or record names of students who participate in the discussion. COSO Framework | A Practical Guide | Pathlock Interested in talking to others about codified operations? reliability, timeliness, transparency, or other After the group determines its responses, the students participate in a class discussion of the group responses. The instructor spent 3045 minutes of class time on each case. board of directors, as appropriate. and automated activities such as authorizations and The graduates also improved on the post-test (pre-test mean score = 13.47 versus post-test mean score = 14.40) (Table 8, Panel C), but the questions that they improved on differed from those that the undergraduates improved on (Table 8, Panels B and C). The AICPA has also added additional points of focus within the availability, confidentiality, and privacy criteria. As would be expected, classification had a marginally significant effect (p < 0.08) on the participants' scores, but the class they were taking in the Fall 2019 semester (undergraduate auditing, undergraduate/graduate auditing, undergraduate/graduate internal auditing, or graduate AIS) did not significantly affect the participants' scores. Risks to the achievement other personnel, designed to provide and development of control activities. is defined as the possibility that an event will When a service organizations client wants to know their information/data is secure and protected, they are likely interested in the security criteria. Additionally, controls can be circumvented by two or 1. The likelihood of achievement is affected by It is also very important to get advice from an experienced accounting firm that can help navigate through the criteria and determine which ones are relevant. The board of directors demonstrates independence from management and exercises . Additionally, a mapping document, which shows how each of the 2017 criteria and points of focus relates to the COSO principles can be downloaded from the AICPA. In all, 61 students completed both the pre- and post-tests, with 46 of the participants listed as undergraduates and 15 of the participants listed as graduate accounting majors (Table 5, Panel A). Maintains Quality throughout Processing Guidance on Internal Control - COSO 4. Points of Focus: THE RISK ASSESSMENT Processes Relevant Data into Information and control environment is the set of standards, We suggest that the cases presented here help students understand the COSO 2013 framework because: 1) the cases are fictionalized versions of real situations designed to address the COSO 2013 components and related principles, and 2) after testing the cases in several different courses over two semesters, we find high levels of student satisfaction, as well as evidence of student learning.1. 2013, Committee of Sponsoring Organizations of the Treadway Commission (COSO). Integrates with Business Processes A teaching note and electronic files are available to faculty members for use with this case. Policies and Procedures activities are the actions established through Points of Focus: Complies With Externally Established Frameworks - Management establishes objectives consistent with laws and regulations or standards and frameworks of recognized external organizations. The cases illustrate how the integration of the components can form a strong internal control system. Principle 8: processes such as sales, COSO previously issued Guidance on Monitoring Internal Control Systems to help orga-nizations understand and apply monitoring activities within a system of internal control. The instructor offered the other three cases (Dominic's Donuts, Cost Plus World Market, and the chemical plant version of the New Dolphin Phosphate) as extra credit individual assignments. information from both internal and external sources to support the This discussion continued with Albrecht and Sack's (2000) Accounting Education: Charting the Course through a Perilous Future, where the authors noted that instructors did not give students enough real world examples. Each bonus case was worth 3 points. The five components are For the full sample, the average mean agreement level for the survey questions ranged from 86.36 (between agree and strongly agree) for wanting more cases like this to 91.93 for adding to the students' textbook knowledge. The accounting principles selected are appropriate in the circumstances. For all five categories (security, availability, processing integrity, confidentiality, and privacy) where the COSO principles map in, there are 61 criteria with almost 300 points of focus. Considers a Mix of Ongoing and Separate Evaluations Transitioning to the 2013 COSO Framework - Baker Tilly As a general rule, all criteria do not need to be included, but there are cases where clients ask for all because they do not know what they are asking for, and therefore asking for all covers everything.
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