What aspect does the "Governance and Culture" component of COSO encompass?

The "Governance and Culture" component of the COSO framework primarily focuses on establishing the ethical climate and culture within an organization, which is critical for effective risk management and internal control. This encompasses setting the company’s tone at the top, which involves the board of directors and management demonstrating their commitment to governance responsibilities, establishing values, and encouraging ethical behavior throughout the organization.

Effective governance influences how strategies and objectives are set and how various aspects of the organization operate. This component ensures that there is proper board oversight, which helps in navigating risks and ensuring that resources are utilized effectively. When strong governance is in place, it leads to a culture that supports risk management and compliance with regulations, albeit compliance itself is not the primary focus of this component.

The other options, while they have their significance, do not align with the primary emphasis of the "Governance and Culture" component. Compliance relates more to regulatory adherence than to the overarching tone set by governance. Developing new product lines and enhancing IT infrastructure are operational details and strategic objectives that are influenced by governance but are not the main focus of this component.