Page 273 - COSO Guidance Book

Ongoing evaluations
The framework states that ongoing evaluations are generally performed by line operating or functional
managers who are competent and have sufficient knowledge to understand what is being evaluated.
Entities frequently use technology to support ongoing evaluations.

Regular managerial activities provide information relating to the extent that managers and other
appropriate employees are aware of the timeliness and accuracy of information provided by the system.
For example, management might tour the shipping department to observe goods being shipped and
correlate that information with daily sales amounts recorded in the general ledger. A monthly production
meeting would also be an example of ongoing monitoring.

Training seminars, planning sessions, and other meetings — these meetings allow management to
obtain feedback on whether controls over financial reporting are functioning as intended. For example,
management might learn that certain pieces of property, plant, and equipment do not have the requisite
identification information.

Separate evaluations

A separate evaluation is a review of the overall internal control system or specific components of internal
control. It is an activity performed to assess the internal control over the financial reporting system’s
effectiveness. The framework states that separate evaluations are beneficial in providing a fresh view
regarding whether each of the five internal control components is present and functioning.

The scope and frequency of the separate evaluation depends on the risk being controlled and the
importance of the controls that reduce the risk. Controls that affect higher risks will be evaluated more
frequently. Evaluation of an entire internal control system would be less frequent and would be
performed annually or after a major strategy or management change, major acquisitions or dispositions,
or other major changes.

The framework states that separate evaluations are often conducted through the internal audit function.
Because separate evaluations are conducted periodically by independent managers, employees, or
external reviewers to provide feedback with greater objectivity, evaluators need to be knowledgeable
about the entity’s activities and how the monitoring activities function and understand what is being
evaluated.

Approaches available to perform separate evaluations include the following:

 Internal audit evaluations
 Other objective evaluations
 Cross operating unit or functional evaluations
 Benchmarking and peer evaluations
 Self-evaluations

Some companies use benchmarking to compare their internal controls to similar companies. However,
the person using the benchmarking should consider the differences in the comparison entities in terms
of objectives, facts, and circumstances.

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