Internal control over financial reporting (ICFR) series
Uncover ICFR insights and guidance
In response to increased regulatory focus, our ICFR series explores the benefits of a proactive versus reactive system for internal controls to help your organization improve its ICFR program—and save costs along the way.
ICFR series #2: Refocus your management review control lens
Sarbanes-Oxley (SOX) is turning 16 this upcoming July. Will it be cause for celebration? Only if some changes are made. Part two of our series, will explore using management review controls (MRCs) to address these current SOX Act hitches:
- High compliance costs
- Outdated ICFR programs
- A continued focus on ICFR by regulators
MRCs are the reviews conducted by management of estimates and other kinds of information for accuracy. At the core, providing management with insights on key success factors, common challenges, and examples of modernizing and renewing ICFR programs is critical. It will create a roadmap for increasing financial reporting reliability while decreasing compliance costs.
Read the report to learn more about MRCs, tools and techniques, and why having the right people in place is critical. It’s time to refocus your internal control lens. MRCs can be the success story for the upcoming year.
ICFR series #1: Refocus your risk assessment lens
The starting point to evaluate the sufficiency of an ICFR program should be with a financial statement risk assessment. The risk assessment, which includes specific financial reporting objectives and identification of risks to achieving those objectives, answers these fundamental questions:
- Which controls are necessary to address the company's risks?
- How many controls does the company need?
- What is "just enough" for the company's ICFR program?
A risk assessment that integrates the right people, processes, tools, and techniques serves to identify the relevant risks of material misstatement (ROMMs). The risk assessment also includes the selection of controls and the evaluation of the design of the control in regard to the ROMM. It's through the risk assessment process that a company can report with confidence the number and types of controls necessary to have an effective ICFR system.
What can management do to refresh their lens?
Management's focus on ICFR should start with determining whether the company's risk assessment process is sufficient to identify and assess the risks to reliable financial reporting, including changes in those risks. Proactive steps management can consider include:
- Refreshing the risk assessment program to incorporate the right people, processes, and technologies to unlock the hidden value.
- Integrating data analytics and visualization to improve the quality of the data analyzed to support robust risk identification and report results succinctly to key stakeholders. This, in turn, can rationalize risks of material misstatement to a level of granularity to focus on what could truly be a material misstatement.
A methodology for automating controls testing
Innovating in internal audit to enhance collaboration and deliver timely insights