Issue 6 |November 2017

COSO has been quantifying approaches to internal controls and risk management for twenty-five years, since the initial guidance. Internal Control — Integrated Framework (ICIF), was issued in 1992. The Committee on Sponsoring Organizations of the Treadway Commission (COSO) is an American private sector group providing leadership and guidance to help organizations reduce fraud and operate more efficiently through the issuance of formal frameworks for internal control and risk management. The five members are the AICPA, AAA, FEI, IMA and IIA.

Building on the guidance of the original 1992 document, COSO in 2004 issued Enterprise Risk Management — Integrated Framework (ERMIF), to broaden the focus. Then, as covered in the February 2012 inaugural issue of the Audit & Accounting Alert, the first major update of the ICIF was announced, which became effective in December 2014. Now, COSO has followed through with the newly updated and expanded ERMIF, renamed Enterprise Risk Management—Integrating with Strategy and Performance (ERFISP) released on September 6, 2017.

As stated in the Executive Summary of the ERFISP, the underlying ICIF is “suitable for designing, implementing, conducting, and assessing internal control, and for consequent reporting.” ERFISP goes beyond just internal controls, pervading all aspects of “strategy-setting, governance, communicating with stakeholders, and measuring performance. Its principles apply at all levels of the organization and across all functions.”

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When we featured bitcoin a year ago in the November 2016 Audit & Accounting Alert, the cryptocurrency was selling for $600 per bitcoin and growing vigorously, despite a hack earlier in that year that cost investors $65 million. Now the price has recently surpassed $6,000, and despite significant obstacles and volatility, continues to be a major, if not as dominant a presence.

Technical challenges and competition have eroded some market share. Capacity restrictions have slowed processing time and increased fees, leading to an offshoot, Bitcoin Cash, to arise. Also, a number of other cryptocurrencies built on other blockchains, such as Ethereum, have entered the market.

Bitcoin and blockchain were described in earlier Audit & Accounting Alert articles as follows:

“Virtual currencies, such as bitcoin, offer a triple entry approach, signified by an underlying technology known as the “blockchain.” The blockchain is described by Ryan Lazanis of Xen Accounting in a recent Techvibes article:

The blockchain is a public, decentralized, distributed ledger that is capable of storing and confirming the transactions that pass through it. This means that the ledger is not owned nor controlled by any one party. Instead the control of the network, or protocol, is distributed among the network’s users. As transactions hit the blockchain, they are confirmed as true and accurate by the network’s users, called miners. If you see a transaction on the blockchain, the transaction has been confirmed and it cannot be reversed.

When two parties enter into a virtual currency transaction, the blockchain becomes the third party, independently holding a copy of the entry, thus completing the triple entry.”

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IASB – International Accounting Standards Board (www.ifrs.org)

1. Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28), issued October 12, 2017, “clarify that companies account for long-term interests in an associate or joint venture—to which the equity method is not applied—using IFRS 9.” Effective January 1, 2019, with early application permitted.
2. Prepayment Features with Negative Compensation (Amendments to IFRS 9), issued October 12, 2017, “allow companies to measure particular prepayable financial assets with so-called negative compensation at amortised cost or at fair value through other comprehensive income if a specified condition is met—instead of at fair value through profit or loss.” Effective January 1, 2019, with early application permitted.
3. Exposure Draft - Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8) –issued September 12, 2017, “to help companies distinguish accounting policies from accounting estimates. The distinction is important because changes in accounting estimates often affect a company’s profit or loss, but changes in accounting policies generally do not.” The comment period ends January 15, 2018.

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