How is the effectiveness of internal controls assessed according to COSO?

The effectiveness of internal controls as assessed according to the COSO framework is primarily based on the interrelatedness and functioning of all components together. COSO emphasizes that the components of internal control—control environment, risk assessment, control activities, information and communication, and monitoring activities—work synergistically to support an organization's objectives.

Evaluating internal controls cannot be done simply by looking at each component in isolation; rather, it involves a comprehensive analysis of how these components interact and reinforce one another. Understanding this dynamic interaction is crucial because the overall effectiveness of the internal control system depends on the seamless integration of these components, which ultimately contributes to achieving governance and operational goals, ensuring reliable financial reporting, and promoting compliance with laws and regulations.

While examining components individually may provide insights into certain aspects of control, it misses the bigger picture—how they collectively mitigate risks and enhance organizational performance. Hence, the holistic approach of checking if all components are functioning together is essential for a robust assessment of internal controls according to COSO.