COSO Internal Control Framework (2013)

The COSO Internal Control Framework, updated in 2013, is widely recognized as a baseline for designing and evaluating effective internal control systems. It is structured to help organizations achieve three main objectives:

1. Operations Objectives: Ensure effective and efficient operations, including the protection of assets.

2. Reporting Objectives: Support the reliability, timeliness, and transparency of financial and non-financial reporting.

3. Compliance Objectives: Ensure adherence to relevant laws and regulations​.

To achieve these objectives, the COSO framework outlines five essential components:

• Control Environment: Sets the organizational tone, influencing overall control awareness and supporting internal controls.

• Risk Assessment: Identifies and evaluates risks that could impede achieving objectives.

• Control Activities: Establishes actions and policies to mitigate identified risks.

• Information and Communication: Facilitates the timely and effective flow of information across and outside the organization.

• Monitoring: Ensures ongoing assessment and adaptation of the control system to maintain effectiveness​​.

These components create a robust structure that organizations can adapt to their specific operational needs and risks.

COSO Enterprise Risk Management (ERM) Framework (2017)

The COSO ERM framework, updated in 2017, expands the traditional COSO Internal Control Framework by focusing on a more comprehensive risk management approach that integrates with strategy and performance. This framework defines ERM as a process involving the culture, capabilities, and practices an organization uses to manage risks aligned with its strategy, aimed at creating and preserving value​.

The COSO ERM framework is composed of five components, each with specific principles to guide implementation:

1. Governance and Culture: Sets the tone from the top and reinforces the organization’s commitment to ethical values and responsible risk management.

2. Strategy and Objective Setting: Integrates risk considerations with strategic planning to ensure objectives align with the organization’s risk appetite.

3. Performance: Identifies and assesses risks that could impact business objectives and selects appropriate risk responses.

4. Review and Revision: Regularly assesses the impact of changes on risk management practices and adjusts them as needed.

5. Information, Communication, and Reporting: Ensures continuous, clear communication of risk-related information throughout the organization​​.

By combining these elements, the COSO ERM framework enables organizations to better align risk with strategy and performance goals, thus enhancing decision-making and resilience in dynamic environments​​.