International Standards of Internal Control Relevant to the Application of PFM/IC

A feature of PFM/I reforms has been the adoption of international standards and the relevant international standards have been those developed by a US body called the Committee of Sponsoring Organisations (COSO). There are five standards. These standards are described in this chapter. However, in the opinion of author the adoption by most countries has been flawed because they have largely been treated as financial and budgetary control standards with no regard to the managerial implications of those standards. Application has started from an internal audit perspective when it would have been much better to have started from a management perspective. Implicit in the writing of those standards is a set of managerial assumptions and these assumptions have been ignored. Indeed it would be better to describe these standards as ‘managerial disciplines’. Also in applying international standards regard should be had to local cultural and historic conditions but this rarely seems to happen and almost by definition the adoption of international standards is regarded as ‘a good thing’. For example, applying the standards when the responsibility for operational management lies with a political official whose experience of operational management may be limited and who may only be in post for a short period is inappropriate. It does not reflect the operational circumstances applying in those organisations for which the standards have been developed namely large international trading companies.