The COSO Report: Challenge and Counterchallenge
When the Committee of Sponsoring Organizations (COSO) of the Treadway Commission released its landmark report, Internal Control--Integrated Framework, in September 1992, it thought its work was done and the baton could be passed to others who would implement its recommendations. After all, the report was the product of thousands of hours of analysis, discussion, formal dialogue and due process involving many members of the sponsoring organizations and others, including chief executives, board members, legislators, regulators, lawyers and consultants. COSO knew a broad consensus of opinion had been reached on a definition of internal control and on a framework that would provide a standard against which entities could measure the effectiveness of their internal controls. However, COSO soon learned it had to step up to defend its work. On October 30, Donald H. Chapin, assistant comptroller general in the General Accounting Office (GAO), sent Robert L. May: COSO's chairman, a blistering letter that concluded the COSO report m effect calls for a retreat from the public interest." That letter became a part of the public record when, on the same day, Mr. Chapin sent it to the Federal Deposit Insurance Corp. as part of the GAO's response to the request for comment on proposed regulations implementing the FDIC Improvement Act of 1991. On November 12, Mr. May responded on behalf of COSO. The American Institute of CPAs made his letter an addendum to its letter of comment, and thus it is a part of the public record. COSO believes the GAO is motivated by a long-held and often-stated belief that there is a pressing need for public reporting on internal controls, including internal controls that go beyond financial reporting matters and encompass certain operations and compliance controls. COSO argues the GAO "should not try to achieve that objective by rejecting valid conclusions in a responsible report .... "Rather, it should attempt to do so "through clear communications with legislators, regulators, and other interested parties, and through legislative or regulatory initiatives carried out under appropriate due process procedures." Both letters are included here for your review. COSO is confident you will conclude its report "is an important contribution to the literature on corporate governance...that helps management identify basic weaknesses in operating, financial reporting and legal/regulatory compliance controls and take action to strengthen them." The GAO letter acknowledges the COSO report "has sponsorship and general acceptance by most important private sector interests." So let's get on with the task of implementing its recommendations ! Copies of the four-volume COSO report, Internal Control--Integrated Framework (product no. 990002JA), can be ordered by calling (800) TOAICPA. The basic price before quantity discounts and shipping and handling is $50. An executive summary (product no. 990001JA) is also available for $3. Letter of November 12, 1992, from Robert L. May, chairman, Committee of Sponsoring Organizations of the Treadway Commission, to Donald H. Chapin, assistant comptroller general, General Accounting Office Your October 30 letter on the final report of the Committee of Sponsoring Organizations of the Treadway Commission, Internal Control--Integrated Framework, asserts that the COSO report "does not underscore the importance of internal controls, falls short of meeting the expectations of the Treadway Commission for management's reporting on the effectiveness of internal controls, and misses opportunities to enhance internal controls oversight and evaluation." The letter makes six major arguments in support of those general points and concludes that "the COSO report in effect calls for a retreat from the public interest." We could not disagree more. The COSO report is a direct response to the Treadway commission's recommendations. …