Page 261 - COSO Guidance Book

Furthermore, the framework notes that communication is the constant, iterative process of providing,
sharing, and obtaining essential information. Internal communication is the method by which information
is circulated throughout the entity. Communication permits employees to receive a clear-cut message
from management that control responsibilities are to be taken seriously. External communication has two
aspects: it permits incoming communication of relevant external information and provides information to
external parties in accordance with their requirements and expectations.

The framework states that the information and communication component of internal control supports
the functioning of all components of internal control (control environment, risk assessment, control
activities, and monitoring activities). Together with the other internal control components, the information
and communication component supports the attainment of the entity’s objectives, including objectives
relevant to internal and external reporting. The information and communication component’s controls
help enable the entity to use the correct information within the system of internal control and to carry out
internal control responsibilities.

AU-C section 315

AU-C section 315 includes the following statement about the information system and the related
business processes relevant to financial reporting:

The information system and financial reporting
The information system relevant to financial reporting objectives, which includes the accounting system,
consists of the procedures and records designed and established to do the following:

 Initiate, authorize, record, process, and report entity transactions (as well as events and conditions)
and maintain accountability for the related assets, liabilities, and equity.

For example, an entity that is a local restaurant has an order-entry method for customers that allows
the customer to record and pay for the order on an input device such as a smart terminal located on
the dining table. Food and beverage inventory is updated when the server delivers and the customer
accepts the order.
 Resolve incorrect processing of transactions (for example, transaction suspense files and procedures
followed to clear suspense items out on a timely basis).
 The entity that is a small restaurant should develop error-correction procedures for any number of
possible mistakes. For example, if the restaurant is temporarily out of the desired beverage or food
items, then an error-correction procedure might be for the system to suggest similar menu items.
 Process and account for system overrides or bypasses to controls.
For example, the customer might be allowed to input an order from a standard menu only. Any
substitute items must be entered by the server.

 Transfer information from transaction-processing systems to the general ledger.
The information system posts sales totals and updates other accounts automatically each day so
that inventory and other accounts are updated.

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