Page 272 - COSO Guidance Book

Introduction

This chapter is based largely on the 2013 Committee of Sponsoring Organizations of the Treadway
Commission (COSO) Internal Control — Integrated Framework (the framework) and AU-C section 265,
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Communicating Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards).
Please refer also to appendix A of this course, “Internal Control Examples,” which is reprinted from the
AICPA publication Internal Control for Today’s Smart Business. This appendix provides examples related
to principles and points of focus in the framework.

The framework

The framework does the following related to the monitoring activities component of internal control:

 Classifies monitoring activities into two categories: ongoing evaluations and separate evaluations
 Includes a requirement for a baseline understanding in establishing and evaluating ongoing and
separate evaluations
 Addresses the use of technology and external service providers

Monitoring activities

The framework notes that ongoing evaluations, separate evaluations, or some combination of the two
are used to determine whether each of the five components of internal control — including each
component’s corresponding principles — is present and functioning. Ongoing evaluations, which are
included within business processes at different levels of the entity, should provide timely information.
Separate evaluations, conducted periodically, will vary in scope and frequency depending on risk
assessment, effectiveness of ongoing evaluations, and other management issues. The findings from
ongoing evaluations or separate evaluations are assessed in accordance with benchmarks established
by regulators, standards-setting bodies, or management and the board of directors (those charged with
governance). Deficiencies are communicated to management and the board of directors (those charged
with governance) and others, such as regulators, as appropriate.

1
This chapter is based in part on Internal Control — Integrated Framework, commissioned by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and authored by PWC (AICPA: Durham, NC), May,
2013. Three volume set is available at: http://www.aicpastore.com/AST/AICPA_CPA2BIZ_Specials/EBooks/
ebooks_bestsellers/PRDOVR~PC-990025/PC-990025.jsp?selectedFormat=eBook
AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
(AICPA, Professional Standards). All auditing standards are available at the AICPA website:
https://www.aicpa.org/research/standards.html

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