One of the first components of the COSO Internal Control Integrated framework is Control Environment. Many clients ask me what exactly does Control Environment mean. Control Environment to me means the tone of the organization. It shows how disciplined or structured your controls are. I always mention in seminars that one can atleast get a broad overview of how effective the internal controls are through the Control Environment in an organization. With Section 404, Control Environment has become all the more important. Below I have listed some of the four key sub-components of the control environment. Management Work Culture - In any organization management's philosophy has an pervasive impact on the system of internal controls. Organization Structure - The Org Structure should be such that it enables monitoring of controls by executives in the normal course of operations. Ethical Values - What are the ethical values of a company. A good Code of Ethics goes a long way in determining the control environment. Policies and Procedures - Strong Policies and procedures certainly help in giving the management as well as the auditors comfort as far as control environment goes. More on Internal Controls >> SOX for Non-Profits , Section 404 Foreign Companies , Sarbanes Oxley for Small Businesses