Page 219 - COSO Guidance Book

– Forms a basis for committing of resources — Management uses operations objectives as a basis
for allocating resources needed to attain desired operations and financial performance.
For example, the restaurant might elect to hire additional part-time workers to work during peak
service periods to achieve operations and financial goals.

 Points of focus: Reporting objectives

– External financial reporting objectives:

 Complies with applicable accounting standards — Financial reporting objectives are consistent
with accounting principles suitable and available for that entity. The adopted accounting
principles are appropriate in the circumstances for that entity.

For example, the U.S. Small Business Administration requires that certain assets be listed at
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fair value when a personal financial statement is submitted.
 Considers materiality and reflects entity activities — Management considers materiality in
financial statement presentation. External reporting reflects the underlying transactions and
events to show qualitative characteristics and assertions.

The framework states that materiality is defined by regulators and standard-setting bodies.
Management develops an understanding of materiality as defined by laws, rules, and
standards when applying the framework in the context of such laws, rules, and standards. The
framework states that an item is material if its omission or misstatement might influence
users’ decisions based on their reliance on the set of financial statements. For example, an
owner-manager of an entity might erroneously exclude a loan from the entity’s balance sheet
that was obtained in the entity’s name because the proceeds were used for personal
purposes. The exclusion of this loan from the entity’s financial statements and nondisclosure
of the improper use of its proceeds most likely would be considered a material misstatement
of the financial statements.

– External nonfinancial reporting objectives:

 Complies with externally established standards and frameworks — Management establishes
objectives in accordance with laws and regulations or standards and frameworks of
recognized external organizations.

For example, consider a local chapter of a national professional association. The local chapter
is required to have both a minimum number of members and luncheon meetings each year (a
standard set at the national level) to receive funding from the national office.

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www.sba.gov/content/economic-disadvantage-eligibility

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