COSO Framework: Risk Assessment Principles

Study Notes

Risk assessment objectives should be clearly specified for effective risk identification and assessment.
Entities must identify and analyze risks to achieve objectives, leading to informed risk management strategies.
The potential for fraud must be considered during risk assessment processes.
Changes impacting internal controls need to be identified and assessed to maintain effective governance.

Control activities are crucial for implementing policies and procedures that align with management directives.
Selected control activities should effectively mitigate risks relating to achieving objectives to acceptable levels.
Organizations should develop general control activities over technology to support the achievement of their objectives.
Control activities are deployed via policies that outline expectations and procedures for implementation.

In SOC 1® and SOC 2® engagements, management asserts that controls operate effectively to meet specified objectives.
SOC 1® focuses on controls related to financial reporting, while SOC 2® assesses service commitments based on Trust Services Criteria.
In SOC 3® engagements, management affirms that system controls were effective throughout the specified period to ensure service commitments and requirements were met.

SOC 1® Type 1 reports include an independent service auditor’s assessment of management's description of the service organization’s system.
The report identifies the function of the system and the duration to which the description applies.
Evaluations involve fairness assessments of the description and the suitability of control design and operating effectiveness.
Details regarding services performed by subservice organizations and the methodology used (carve-out or inclusive) must be reported.
Service auditors must obtain reasonable assurance about the fairness of management's description and controls.

Auditors examine management's description of the system and assess the design and operating effectiveness of controls.
Procedures to obtain evidence regarding the fairness of the presentation and effectiveness of controls are essential for audit credibility.
Risks related to inaccuracies in management’s descriptions and control effectiveness must be carefully assessed by auditors.

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