Question

Component of COSO that states it is important for management to demonstrate competency in carrying out their duties, involve the BoD and audit committee in decisions, assign authority with best interest of the company and be consistent and appropriate in management style.

Answer 1

The COSO component discussed pertains to the Control Environment, focusing on ethical leadership, the role of the board of directors, and the effectiveness of corporate governance in managing a company's operations.

Step-by-step explanation:

The component of the COSO framework that the student's question refers to is likely the Control Environment. This component emphasizes the importance of management's responsibility in demonstrating leadership and commitment to integrity and ethical values. It involves senior management and the board of directors (BoD) actively participating in overseeing and managing the company's operations and ensuring that audit committees are involved in decision-making processes. Authority should be delegated with the company's best interest in mind, demonstrating a corporate governance framework that is effective and aligned with the company's goals. The consistency and appropriateness of management's style in fulfilling these duties are critical for maintaining an effective control environment.

Good examples of corporate governance structures include the board of directors, which provides oversight for executive decisions, the external auditing firm which reviews financial records, and large outside investors. However, as seen in the case of Lehman Brothers, when corporate governance structures fail to operate effectively, they may not provide accurate financial information to investors, leading to significant consequences.