Case Study - COSO Components Principles

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Case Study: COSO Components Principles
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University of
Course Number: Course Name
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April 30, 2023

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Case Study: COSO Components Principles
According to Aytac and Cabuk (2020), the COSO framework is one of the most
effective approaches to establishing internal control over the risks an organization may face.
A mid-sized car manufacturer Ariel Motor Company Ltd has been chosen as a company
whose internal control system should be improved to ensure efficient management of
compliance risks, “reduce costs arising from risk,” and enhance the value of the
organization (Febrianti & Novita, 2021, p. 18; Prewett & Terry 2018).
Control Environment
The board of directors of Ariel Motor Company, together with middle management,
oversees the implementation and functioning of internal control. That approach contradicts
one of the COSO framework principles, which requires elevating responsibility for
enterprise risk management to the board of directors (Prewett & Terry, 2018). Therefore, the
board of directors of Ariel Motor Company should independently oversee the
implementation and functioning of internal control to deal with risk-related uncertainties
more constructively and ensure achieving business objectives. At the same time, the
organization has established a strong organizational culture. It is dedicated to its core
values. Besides, the company has adopted effective HRM practices, which is a basis for
attracting, developing, and retaining valuable qualified employees (Prewett & Terry, 2018).
Risk Assessment
Ariel Motor Company has failed to create an auto-control mechanism, which
increases the probability of fraud (Aytac & Cabuk, 2020). The certified public accountant
working for the company is the only employee who prepares financial statements. That
approach to the segregation of duties contradicts the COSO framework principle, which
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emphasizes the need to take fraud risk factors into consideration in the risk assessment
process (Aytac & Cabuk, 2020). It is worth noting that even though Ariel Motor Company
has failed to create an auto-control mechanism, the organization has adopted tools for
assessing the severity of other types of risks, prioritizing those risks, and implementing risk
responses (Prewett & Terry, 2018).
Control Activities
Ariel Motor Company has not developed a serial chain system of quality control
activities that alters the organization’s compliance with ISO standards. Significantly, the
failure to implement the appropriate quality control activities may ultimately prevent the
company from taking advantage of its strengths to achieve organizational objectives.
Therefore, the organization should develop quality control activities and carry out an
internal quality audit, quality process audit, and overall audit. It is worth noting that a
process audit should be carried out to examine “whether the works are performed correctly
or not under the quality standards,” while the work and performance of all departments
should be evaluated within the framework of the overall audit (Aytac & Cabuk, 2020, p.
364).
Information and Communication
Ariel Motor Company has a horizontal organizational structure. The organization has
aligned how it communicates information internally with its organizational structure by
adopting horizontal communication. In other words, information flows from one department
to another at the same level, thus streamlining the communication process and allowing
timely information updates (Febrianti & Novita, 2021). That approach to aligning how the
company internally communicates information with its organizational structure is in line

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with COSO’s information and communication principles. However, Ariel Motor Company
should improve its communication with external stakeholders “about matters affecting the
functioning of internal control” (Aytac & Cabuk, 2020, p. 358).

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References
Aytac, A., & Cabuk, A. (2020). Assessment of the effectiveness of internal control
system and a case study. Journal of Accounting and Taxation Studies, 13 (2), 353-
376.
Febrianti, I., & Novita, N. (2021). COSO’s enterprise risk management framework in
agriculture startup to support the achievement of SDGs pillars. The International
Journal of Applied Business, 5(1), 18-36.
https://doi.org/10.20473/tijab.V5.I1.2021.18-36
Prewett, K., & Terry, A. (2018). COSO's updated enterprise risk management Framework –
A quest for depth and clarity. The Journal of Corporate Accounting & Finance,
29(3), 16-23. https://doi.org/10.1002/jcaf.22346

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1

Case Study: COSO Components Principles

Course Number: Course Name

April 30, 2023

Case Study: COSO Components Principles

whose internal control system should be improved to ensure efficient management of

board of directors of Ariel Motor Company should independently oversee the

implementation and functioning of internal control to deal with risk-related uncertainties

organization has established a strong organizational culture. It is dedicated to its core

Ariel Motor Company has failed to create an auto-control mechanism, which

responses (Prewett & Terry, 2018).

company from taking advantage of its strengths to achieve organizational objectives.

Information and Communication

aligned how it communicates information internally with its organizational structure by

company internally communicates information with its organizational structure is in line

functioning of internal control” (Aytac & Cabuk, 2020, p. 358).

agriculture startup to support the achievement of SDGs pillars. The International

Journal of Applied Business, 5(1), 18-36.

29(3), 16-23. https://doi.org/10.1002/jcaf.22346

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