According to the COSO model, the control environment provides the basis for other components of internal control by ensuring the internal control awareness of employees in an organization. The control environment is the fundamental component of the internal control system.
Control Environment Principles
When implementing the control environment, institutions consider the following principles and the focal points related to these principles. These principles are briefly mentioned below.
Principle 1: Ethical Values and Integrity: The organization* is committed to honesty and ethical values.
Principle 2: Oversight Responsibility of the Board of Directors: The Board of Directors shall demonstrate independence from management and exercise oversight of the development and performance of internal control.
Principle 3: Establishing Structure Authority and Responsibilities: Management, under the supervision of the board of directors, establishes structures, reporting lines, and appropriate authority and responsibilities that are appropriate to the objectives.
Principle 4: Commitment to Competency: The organization* demonstrates its commitment to attracting, developing, and retaining competent individuals toward its goals.
Principle 5: Accountability: The organization* holds individuals accountable for their internal control responsibilities, aligning with its objectives.
*Organization: In the context of the Framework, when defining the principles, the word “organization” includes the board of directors, management, and other personnel. Generally, the board of directors functions as the oversight body under this term.
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