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What are the key principles of the control environment?

The control environment is one of the five key components of the COSO internal control framework. At a high-level, the control environment basically addresses “tone at the top”. It addresses the policies and procedures that are in place to provide the basis for carrying out internal controls in an organization. There are 5 key principles in the control environment include:

Commitment to Ethics and IntegrityA commitment to ethical values and integrity within the company should be easily identifiable. Committing to ethics and integrity is often determined by using the “tone at the top” methodology.

Board Independence and Oversight – An independent board separate from company’s management that is responsible for oversight. The independent board is responsible for providing objective oversight over the organizations internal control systems.

Organizational Structure – Organizational structures are used to highlight, determine, assign, and restrict authorities and responsibilities that are necessary within the organization.

Commitment to Competence – A commitment to bringing in competent employees who are capable of performing the necessary job descriptions. The human resources department will have a general responsibility for hiring capable employees and executives.

Accountability – The establishment of performance measures such as annual reviews. Employees and executives who work for an organization should be held accountable for their actions and wrongdoings.


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