Page 210 - COSO Guidance Book

For example, a subcontractor for a major project might receive a bonus if work is completed
ahead of schedule in accordance with certain stipulated quality standards.

– Retain — Provide incentives to motivate and reinforce expected levels of performance and desired
conduct, including training and credentialing as appropriate.
For example, an entity might reward employees with bonuses for suggesting practical cost-
effective methods to enhance efficiency of operations. Similarly, an employee who achieves a
certain milestone, such as obtaining a specialty credential in a certain area of expertise, could
receive a bonus.

 Point of focus — Plans and prepares for succession

Senior management and the board of directors (those charged with governance) develop
contingency plans for assignments of responsibility important for internal control.

For example, a CPA worked with a privately owned specialty entity that began operations in the early
1980s with annual revenue of $60,000. The entity has grown so much that recent sales approach
$100 million. The sole owner has no heirs. After consultation with legal counsel and other
professionals, the owner created a succession plan that provides assurance that the entity will
continue to operate after the owner’s separation from service. The entity’s purpose will then be to
continuously generate profits in order to fund various charitable foundations.

Control environment principle 5: Enforces accountability

The framework provides this definition for principle 5: “The organization holds individuals accountable for
their internal control responsibilities in the pursuit of objectives.”

The attributes of this principle include defining responsibilities and assigning authority for all employees
including the board of directors. The assignment of authority and responsibility includes appropriate
limitations. For example, a company policy might forbid dismissal of an employee by the employee’s
supervisor without first consulting human resources.

The framework provides the following five points of focus to highlight important characteristics relating
to this principle of enforcing accountability:

 Point of focus — Enforces accountability through structures, authorities, and responsibilities
Management and the board of directors (those charged with governance) establish mechanisms to
communicate and hold individuals accountable for performance of internal control responsibilities
across the organization and implement corrective action as necessary.
The board of directors holds the CEO accountable for understanding the entity and establishing a
system of internal control to support the achievement of the entity’s objectives. The CEO and senior
management are then responsible for designing, implementing, conducting, and periodically
assessing the structures, authorities, and responsibilities needed to establish accountability for
internal control at all organization levels.

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