COSO Issues Discussion Document on Monitoring; Comments Due Oct. 31

September 17, 2007

FEI Summary

On Sept. 17, 2007, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) released for public comment a Discussion Document entitled, “Guidance on Monitoring Internal Control Systems.” The comment deadline is October 31, and information on how to submit comments is available here. FEI participated activity on COSO’s project task force, led by Grant Thornton, which developed the draft guidance. The draft guidance is intended to help companies strengthen internal control, including internal control over financial reporting, and may assist companies in making their assertions on internal control under Sarbanes-Oxley Section 404.

COSO Project Task Force Led by Grant Thornton Developed Discussion Document

As noted in COSO's press release, the Monitoring guidance was drafted by a project task force led by Grant Thornton, including representatives from COSO’s five sponsoring organizations (listed below), with additional representation from large and small companies and audit firms and other experts.

Larry E. Rittenberg, COSO chair, stated in his introductory letter to the draft guidance that it is intended to be broadly applicable to all three internal control objectives identified in COSO’s 1992 Internal Control-Integrated Framework. Those objectives are: effectiveness and efficiency of operations, compliance with applicable laws and regulations and reliability of financial reporting. The third internal control objective in particular – reliability of financial reporting – notes Rittenberg, “is relevant to public reporting under the Sarbanes-Oxley Act of 2002 or under similar regulatory initiatives around the world.”

Public companies that are required to report on internal control under Sarbanes-Oxley Section 404 – and private companies that voluntarily issue similar reports – will want to read the Discussion Document with an eye toward whether it will help them strengthen internal control over financial reporting and whether the recommended guidance will assist in making the internal control assessment and assertion process more efficient and effective. However, the guidance is meant to be helpful to companies of all sizes, public and private, regardless whether they file internal control reports under the Sarbanes-Oxley Act.

FEI Among Sponsoring Organizations of COSO, Participated on COSO Project Task Force

FEI is among the five founding sponsoring organizations of COSO. The other four sponsoring organizations are the American Accounting Association (AAA), American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA) and Institute of Management Accountants (IMA).

Michael P. Cangemi, FEI president and CEO said, "FEI is a strong supporter of COSO and we believe internal control is essential to an efficient and effective business. I am pleased that, while many will use COSO's Monitoring Guidance specifically for internal control over financial reporting, COSO is trying to provide guidance that will be useful to internal control more broadly as it effects the business."

Cangemi noted that FEI's Task Force on Monitoring (TFM) will be coordinating a formal response from FEI on the Discussion Document. FEI’s TFM includes a cross section of financial executives from public and private companies, with expertise in compliance, internal controls and financial reporting.

Cangemi added, “I encourage all of our members to review the Discussion Document and consider commenting on it, focusing particularly on how it can help strengthen internal control and any issues noted regarding its practical application."

Rick Brounstein, executive vice president at Calypte Biomedical Corp. and a director of The CFO Network, chairs FEI's Task Force on Monitoring, and is FEI’s member representative on the COSO Project Task Force.

Brounstein said: "The COSO Project Task Force, led by Grant Thornton, worked diligently for close to a year to develop the draft guidance on Monitoring.” He added, “FEI's Task Force on Monitoring looks forward to reviewing COSO's Discussion Document and coordinating a formal response from FEI, and I join our President Michael Cangemi in encouraging FEI members from public and private companies of all sizes to review the draft and considering commenting on it from the perspective of their own companies.

“COSO is very much interested in making the monitoring guidance balance costs and benefits for companies of all sizes,” added Brounstein, “and I encourage our members to keep that in mind as they read the document and provide comments, as appropriate, in considering any potential implementation issues. FEI members can feel free to file comment letters individually and/or by sending their thoughts to me at broun@comcast.net and to FEI’s Director of Technical Policy Analysis who represents us on the COSO board, Edith Orenstein eorenstein@FinancialExecutives.org, to share with our FEI Task Force on Monitoring as we draft FEI's formal response letter to COSO."

Comment Deadline Oct. 31; How to Submit Comments to COSO

A Web-based portal has been established by COSO to aggregate responses on 39 specific questions, as well as any other comments. The questions can also be downloaded and printed for reference separately, and comments can also be sent via email or fax. The web-based portal, questions for public comment and other information can be found on COSO’s website here.

Discussion Document First Phase of Project, Exposure Draft Expected 4Q07; Final Guidance 1Q08

As COSO Chair Larry Rittenberg noted in his introductory letter to the draft guidance, the Discussion Document is the first phase of COSO’s Monitoring project. “The second phase of the monitoring project, scheduled for release after comments are received on this discussion document,” said Rittenberg, “will provide examples, case studies and tools to assist all organizations in implementing effective and efficient monitoring.”

COSO currently intends to release an exposure draft for public comment (the “second phase” of the Monitoring project noted by Rittenberg above) – containing the concepts included in the Discussion Document, and additional proposed implementation guidance and case studies – in the fourth quarter of this year. Rittenberg states final guidance on monitoring is anticipated to be issued in the first quarter of 2008.

Summary of Key Points from COSO Discussion Document

A summary of Key Points from the COSO’s Discussion Document on Monitoring Internal Control Systems is available here.

Other summaries from: 

BNA Daily Report for Executives, Sept. 18, 2007

Updated Sept. 18, 2007 by: Edith Orenstein, Director of Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically stated above.