Improving Governance and Internal Control

By Tidrick, Donald E. | The CPA Journal, October 2012 | Go to article overview

Improving Governance and Internal Control


Tidrick, Donald E., The CPA Journal


An Interview with COSO Chairman David L. Landsittel

David L. Landsittel was appointed chairman of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of June 1, 2009. Landsittel was selected for the position after an extensive, four-month search, according to a COSO press release announcing his appointment Landsittel was lauded for "his leadership skills, knowledge of risk management and control, his previous service as Chairman of the Auditing Standards Board [ASB] ... [and] his leadership in the development of the external auditor's responsibüity for detecting fraud ([Statement of Accounting Standards] SAS 99 [Consideration of Fraud in a Financial Statement Audit])."

Prior to his appointment to COSO, Landsittel spent 34 years with Arthur Andersen, and he has an extensive record of professional service. He is also a former chair of the Illinois CPA Society. This interview took place during Landsittel' s visit to Northern Illinois University, on April 25, 2012, to speak at the university's Beta Alpha Psi (Gamma Pi Chapter) spring initiation banquet.

COSO's Mission and Board Members

Donald E. Tidrick for The CPA Journal Would you share a historical summary of COSO?

David L. Landsittel: COSO [www.coso.org] was formed in 1985, in connection with the National Commission on Fraudulent Financial Reporting - better known as the Treadway Commission, named for James C. Treadway, Jr., a former SEC Commissioner who chaired it. In the 1970s, there were several instances of improper corporate payments that were inappropriately accounted for, which led to the passage of the Foreign Corrupt Practices Act [1977]. In the 1980s, there were several additional conspicuous instances of outright fraud as some companies engaged in fraudulent financial reporting to manipulate their stock prices.

In 1985, five private-sector organizations that had a stake in the credibility of financial reporting came together to establish the National Commission on Fraudulent Financial Reporting. These five sponsoring organizations were 1) the American Accounting Association [AAA]; 2) the AICPA; 3) the former Financial Executives Institute, now the Financial Executives International [FET]; 4) the Institute of Internal Auditors [HA]; and 5) the former National Association of Accountants, now the Institute of Management Accountants [IMA]. Collectively, these organizations represent about half-a-milhon members, including many outside the United States.

In October 1987, the Treadway Commission issued its report, which detailed 49 specific recommendations designed to improve the integrity of financial reporting. These recommendations were directed at a variety of stakeholders, including public compames, independent auditors, the SEC and other regulators, and even educators. Over time, these sponsoring organizations have seen the benefits of cooperation, and they have continued to believe in the merits of working together.

One of the Treadway Commission's recommendations emphasized the need to study internal control in a comprehensive manner, which gave the group a specific project to pursue. With the support of Coopers & Lybrand as the project manager, COSO published the Internal Control - Integrated Framework in 1992. There have also been other projects to make the control framework more robust, including Internal Control Issues in Derivatives Usage, which was published in 1996.

In 2004, we published a separate framework on enterprise risk management [ERM; Enterprise Risk Management- Integrated Framework]. Some people might confuse the two frameworks or misperceive that the ERM framework supersedes the internal control framework, but in our view, they stand on their own as separate documents.

In addition to the ERM framework, we sponsored two significant research studies to investigate fraudulent financial reporting. In recent years, we have published a series of "thought papers" that have focused on important issues related to ERM in order to help stakeholders move along the maturity curve. …

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