Summary Of The National Commission On Fraudulent Financial Reporting

In 1987 The Committee of Sponsoring Organizations (COSO) which is also referred to as The Treadway Report released the Report of the National Commission on Fraudulent Financial Reporting. Later in 1992 COSO published Internal Control—Integrated Framework which gave corporations a guide to put in place effective internal control. In 2002 the Sarbanes-Oxley Act was passed requiring companies to access the effectiveness of their internal controls. In 2013 COSO released an updated version of Internal Control—Integrated Framework. COSO was created as a result of the financial corruption that was occurring in many corporations from, the late 70’s –mid 80’s, it is the collaboration of five organizations from the private sector these organizations are the American Institute of Certified Public Accountants (AICPA), the American Accounting Association (AAA), the Financial Executives Institute (FEI), the Institute of Internal Auditors (IIA), and the National Association of Accountants (NAA). The purpose of COSO is to provide corporations with ways to detect and remedy fraud. COSO looks at internal controls, business ethics, fraud and financial reporting.

Cohen and Metcalf Committees

The committee wrote numerous recommendations including the following:
• Shareholders should be given greater control over directors
• The company should approve payments made to directors upon retirement
• While the idea that a managing director could be paid excessively was unfounded. The Report suggested that companies disclosed the compensation of directors including payments from outside sources. p. 47
• The directors should buy and sell shares of the company publicly for transparency. p 50
• Only companies in the loan making business should be permitted to recommend loans to directors. p 51