COSO was organized in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, an independent private-sector initiative that studied the causal factors that can lead to fraudulent financial reporting. It also developed recommendations for public companies and their independent auditors, for the SEC and other regulators, and for educational institutions.
The National Commission was sponsored jointly by five major professional associations headquartered in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), The Institute of Internal Auditors (IIA), and the National Association of Accountants (now the Institute of Management Accountants [IMA]). Wholly independent of each of the sponsoring organizations, the Commission included representatives from industry, public accounting, investment firms, and the New York Stock Exchange.
The first chairman of the National Commission was James C. Treadway, Jr., Executive Vice President and General Counsel, Paine Webber Incorporated and a former Commissioner of the U.S. Securities and Exchange Commission. Hence, the popular name "Treadway Commission." Currently, the COSO Chairman is Robert Hirth.
COSO’s goal is to provide thought leadership dealing with three interrelated subjects: enterprise risk management (ERM), internal control, and fraud deterrence.
Regarding ERM, in 2004 COSO issued Enterprise Risk Management – Integrated Framework. COSO has also published several thought papers beginning in 2009 relating to ERM. These thought papers are available for free download under “Guidance” tab.
Regarding internal control, in 1992 COSO published Internal Control – Integrated Framework. Then, in 1996 COSO issued Internal Control Issues in Derivatives Usage. In 2006 COSO published Internal Control over Financial Reporting – Guidance for Smaller Public Companies, followed by Guidance on Monitoring Internal Control Systems published in 2009. At the end of 2010, COSO announced a project to update its 1992 Internal Control – Integrated Framework.
Finally, in the area of fraud deterrence, COSO has published two research studies. The first study released in 1999 was titled Fraudulent Financial Reporting: 1987-1997. A continuation study called Fraudulent Financial Reporting: 1998-2007 was released in 2010.
Looking ahead, COSO anticipates focusing on the following:
- Updating Internal Control – Integrated Framework from 1992. This initiative is expected to make the existing Framework and related evaluation tools more relevant in the increasingly complex business environment so that organizations worldwide can better design, implement, and assess internal control. More information on the update project can be found in related FAQs.
- Providing additional thought papers to assist the ERM stakeholders in advancing along the “maturity curve” of an effective ERM process.
- Providing additional research and guidance on the control environment dealing with behavioral issues and other “soft side” research issues like “rationalization” and overconfidence, in part in response to insights contained in the more recent fraud research study noted above.
- Providing guidance on internal control in the public sector.
COSO is a committee of five sponsoring organizations whose representatives come together periodically to work on specific projects. COSO’s projects are undertaken, reviewed and finalized in accordance with policies agreed to by the sponsoring organizations.
Committee Members: Each sponsoring organization shall appoint an individual to be its representative to COSO. Each sponsoring organization will determine its own criteria and characteristics for appointing a member (e.g., length of time, staff or volunteer, etc.). Committee members are responsible for COSO’s strategy, funding and development of frameworks, guidance and research. Committee members are expected to be empowered, participative and highly supportive of COSO’s mission. (See current listing of board members, together with brief biographical sketches under the “Board” tab.
Committee Meetings and Expectations: Committee members shall attempt to convene quarterly to review COSO’s strategy, financial and operating performance, continuous process improvements and any other business such as work-in-progress or new projects. COSO, within reason, will rotate these quarterly meetings at locations near each of the sponsoring organizations, with a conference call also being an option depending on the agenda.
COSO Chair: The COSO Chair is appointed by the unanimous vote of the sponsoring organization’s members. The term of the Chair shall be three years, renewable for additional years if agreed upon by the Chair and voted upon by COSO’s committee members.
Appointment of Sub-Committees/Task Forces: COSO may form sub-committees or task forces at its discretion to advise COSO on guidance issues or research projects. At its discretion, COSO may choose to communicate objectives, deliverables and resource requirements to the committee or task force.
Research and Guidance Projects: COSO can choose to engage third parties to conduct research on behalf of COSO. The research must be aligned with COSO’s mission. Appointment and terms of compensation require the unanimous approval of COSO’s committee members. A COSO committee member can conduct the research but must recuse him/herself from the voting process.
Administrative Functions Performed for COSO: Since COSO is a committee that is sponsored by other organizations, there is a need for certain administrative functions of the committee to be performed by one or more of the sponsoring organizations or third parties. The responsibilities of each organization may change over time to reflect either new responsibilities or to balance the overall administrative support of each sponsoring organization. Some of the services provided to COSO include: accounting, licensing, public relations, website development, copyright, document translation oversight, administrative assistance and research.
Executive Summaries of all COSO guidance are available online for free download.
Thought papers are available online for free download. Click here to see a list of the thought papers.
Click here to order a COSO publication.
To request English language licensing or permission to reprint COSO guidance in part or in whole, download the Copyright/Reprints request form, complete and e-mail it to firstname.lastname@example.org . Applicants should receive a response from the AICPA permission team on behalf of COSO within 10 days.
To request permission to translate COSO guidance, download the translation request form, complete it, and e-mail to email@example.com. Applicants should receive a response within two weeks.
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