Management considers all relevant external parties who have an interest in or who would be reasonably expected to obtain information about the company's internal control over external financial reporting. The company's disclosure committee (or similar group responsible for external communications) has established a process to evaluate ongoing company events, policies, activities, and other matters that impact external parties that are important to the company's external financial reporting objectives. The disclosure committee determines the information that should be reported to external parties, as needed. Such information may include:

A federal agency is responsible for managing and overseeing the distribution of approved funds to not-for-profit organizations that provide community outreach programs for underprivileged children. In connection with its oversight responsibilities, the federal agency requests information from each community organization about its program's controls over the allocation and use of funds received.

Management of each community organization summarizes their control activities over the allocation and use of funds and provides a statement that control activities were designed, implemented, and operating for the quarter. Any changes to or deterioration in the controls, such as changes in ability to segregate duties due to loss of personnel, are communicated along with management's actions to mitigate risks. This summary is provided quarterly to the federal agency.

ConFab Group, a large, privately held telecommunications equipment provider, outsources all its manufacturing activities to third parties, which are located around the world. Under the contractual arrangements, ConFab is responsible for damage or loss of inventory from the receipt of raw materials at the third-party contract manufacturer until the completed products are delivered to the freight forwarder for shipment. This means management retains significant risk to inventory that is not within its physical control.

ConFab's management team has specific policies and procedures for the purchasing, manufacture, and preparation of shipments to mitigate its economic exposure and that support its estimates for inventory reserves. Management communicates these policies to the manufacturers, along with specific contract clauses that require adherence to the policies and the right to audit by the company.

To ensure that policies and procedures are carried out as intended, ConFab has implemented several methods of communicating with the contract manufacturers:

ConFab also performs annual reviews of the contract manufacturers’ controls that support the completeness and accuracy of reports provided throughout the year.

Management and other personnel stay abreast of new matters relevant to their area of responsibility in order to identify and respond to changes that may impact, directly or indirectly, external financial reporting objectives or the related internal control. Management of each business unit or functional group identifies relevant means to receive information from outside the company, and assigns responsibility to themselves and other personnel to be responsible for obtaining, reviewing, and sharing relevant information within the company, as appropriate. Sources of information may include:

As a result of a regulator's examination, Norgaard-Kellogg Financial, a registered investment advisor, was informed that the firm was not in compliance with rules requiring documentation of certain compliance policies and procedures for trading activities and the related accounting and disclosure requirements. Eileen Nachbar, the company CFO, met with outside counsel and external auditors to review the matters and obtain their views. She also engaged other external advisors with expertise on risks and best practice procedures related to trading activities.

After these discussions, Ms. Nachbar met with the senior management of Norgaard-Kellogg responsible for trading activities to discuss the regulator's findings and her own evaluation of the issue and recommendations for enhancements. The information was shared with the disclosure committee, a group responsible for assessing the requirements for disclosures in external filings. After approval of the proposed actions by the disclosure committee, Ms. Nachbar developed an action plan for updating internal control policies, procedures, and related documentation to address the compliance requirements.

Nevio Group regularly sells its products in highly unstable economic environments where currency values fluctuate significantly. These fluctuations significantly affect the accounting treatment of transactions and balances recorded in the financial statements.

Clint Bell, the assistant treasurer, is responsible for obtaining and analyzing information from an outside advisory firm related to the past, present, and future expectations of currency fluctuations. One of his sources is a subscription service that provides reporting on currency values, changes in values, and trends over periods of time. It also provides alerts if currency fluctuations exceed certain thresholds.

Mr. Bell sets up the relevant currencies, time periods, and alerts appropriate for Nevio Group. The treasurer reviews the settings and approves changes, if needed, each quarter. On a monthly basis, or more frequently based on alerts received, Mr. Bell evaluates the currency rates used for financial accounting associated with significant estimates impacted by currency values.

Based on the information gathered and corroborated from various external sources, he updates his analysis estimates. The analysis is given to the treasurer, director of financial reporting, and controller to help them ensure that the basis for their estimates and communications in external reports is current and appropriate.

Management surveys customers, vendors, and others on their perception of the integrity and ethical values of company personnel. This survey process is controlled by company personnel independent of the main customer/vendor contacts. These surveys not only provide a sounding board for the company's customers, but also enable management to gain important information about the commitments made to customers and ensure that such commitments are consistent with the understanding of formal arrangements between parties.

Management carries out surveys of external parties in a variety of ways, which may include:

Fitness Four, a manufacturer of strength and cardiovascular fitness equipment, has developed a policy requiring a member of management to contact each customer at least annually. The management team member must not be the customer's primary contact or in any senior line of reporting of the customer's primary contact at the company.

During these discussions with customers, the manager is expected to address a number of areas relevant to the customer-company relationship that impact external financial reporting, including:

The information gathered through these conversations is shared with finance and other relevant company personnel. Any issues that indicate a potential financial reporting issue, such as incomplete delivery of products or services, or billing and payment, are further investigated. Where changes in the accounting for transactions are needed, additional reviews are performed to ensure that the issues are fully resolved. Also, an evaluation of internal controls for deficiencies is conducted to prevent or detect issues from recurring.

Management provides a whistle-blower phone number or email address to customers, suppliers, outsourcing companies, and other external parties to facilitate feedback on potential improprieties or improper or unreliable financial reporting. The contact information is disseminated through various means, such as the company's website and on invoices sent to customers.

Shoreup Nutrients is a manufacturer and retailer of branded and private label vitamins and nutritional supplements. It provides a section on its website for anyone who wants to respond with questions, concerns, complaints, or other information.

The internal audit department of Shoreup Nutrients is responsible for maintaining a process to ensure that all reported matters are collected, documented, evaluated, and addressed appropriately. On a weekly basis, internal audit monitors the website and summarizes any new information collected by using a collaboration software tool accessible only to the audit department.

The director of internal audit, Naseema Bahair, evaluates each matter and develops an action plan, which includes:

Upon review of complaints received through whistle-blower hotlines, a decision is made by the CFO or the audit committee chair about the information that will be shared to the reporting party.

Following the external auditor's review of financial information and independent evaluation of internal control effectiveness, management receives a written summary of significant matters identified during the course of the work. The board of directors discusses these at a subsequent meeting, where external audit personnel discuss their findings and management discusses proposed resolutions.

The management at Hessen's Assure, a healthcare insurance company, has established a process with the external audit firm to coordinate the periodic assessments of internal controls and discuss and respond to matters identified during the course of the external audit. The management team meets monthly with the external auditor to discuss internal control testing plans, status, and issues.

Internal control issues or recommendations for improvement that are identified by the external audit firm are assigned to an employee in the impacted business process area, and that person develops and presents a recommended response at the monthly meeting, or more frequently if needed. The management team evaluates each response, such as modifying internal control activities; reinforcing awareness; updating policy, procedure, or control documentation; or performing additional evaluations, and assigns responsibility for carrying out the response.

Results of the management meeting are communicated to the external audit firm. As well, a summary of significant issues and observations are presented at the audit committee meeting at set intervals during the year or as necessary.