The foundation of internal control

Article Abstract:

The model proposed by the Committee of Sponsoring Organizations (COSO) on its report, 'Internal Control - Integrated Framework,' incorporates integrity, ethical values, motivations and temptations, moral guidance, and competence as the basis of internal control sytems. Along with these factors, management philosophy and operating method, the board of directors or audit committee, organizational structure, appointment of authority and responsibility and human resources policies and practices are also identified as components of the control system. The COSO model abandons the practice of defining internal control systems in tangible terms and concentrates on concrete elements such as communication, ethical behavior, management integrity and corporate culture. The recognition of the behavioral facets of internal control systems is seen as a positive step in the identification of the causes of the problems of internal controls.

Models, Corporate governance

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Improve internal reporting with ABC and TOC

Article Abstract:

The integration of activity-based costing (ABC) and theory of constraints (TOC) can help companies improve their internal reporting function. As applied to a hypothetical distillery company, the union has proven to reflect not only materials but also major variable costs to derive a net throughput contribution. This application offers a more precise measure of truly variable costs, as compared to standard TOC which captures only the materials components. The proposed union also recognizes the differences between direct and indirect fixed costs. As a result of the combined use of ABC and TOC, less effort is expended than a conventional ABC implication. Moreover, more information is derived than the traditional TOC approach. Users are thus able to more clearly answer traditional cost-volume-profit queries, evluate profitable product lines, and assess the bottom line profitability by product and customer.

Cost Accounting, Methods, Business reports

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Everyone an internal auditor

Article Abstract:

Kennametal Inc. is a manufacturer of machine tools accessories that successfully trained its employees to act as internal auditors. In 1992, the internal audit staff of the company was peopled by three operational and financial auditors and one information systems auditor, which made internal auditing a slow process. In response, management decided to launch a program where nonfinancial employees are trained in functions typically accomplished by internal auditors. To ensure the success of the initiative, training was offered not only to audit teams but also to the audit steering committee which oversees internal-auditing procedures. Aside from educating employees to the auditing process and auditing concepts, they were also given flowchart training to help them better understand internal auditing. As a result, internal auditing is able to help management achieve its continuous improvement goals.

Machine tool accessories, Cutting Tool and Machine Tool Accessory Manufacturing, Accounting and auditing, Training, Tool industry, Kennametal Inc. (Latrobe, Pennsylvania), KMT

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