|
|
 |
|
Sarbanes Oxley Act -
Auditing Standards |
|
Public
Company Accounting Oversight
Board
Bylaws
and Rules – Standards – AS2
Auditing
Standard No. 2: An Audit of Internal Control
Over Financial Reporting Performed in
Conjunction With an Audit of Financial
Statements
APPENDIX
C
Safeguarding of
Assets
C1.
Safeguarding of assets is defined in paragraph 7
as those policies and
procedures
that "provide reasonable assurance regarding
prevention or timely detection
of
unauthorized acquisition, use or disposition of
the company's assets that could
have
a
material effect on the financial statements."
This definition is consistent with
the
definition
provided in the Committee of Sponsoring
Organizations (COSO) of the
Treadway
Commission's Addendum, Reporting to External
Parties, which provides the
following
definition of internal control over safeguarding
of assets:
Internal
control over safeguarding of assets against
unauthorized acquisition, use
or
disposition is a process, effected by an
entity's board of directors,
management
and other personnel, designed to provide
reasonable assurance
regarding
prevention or timely detection of unauthorized
acquisition, use, or
disposition
of the entity's assets that could have a
material effect on the
financial
statements.
Such internal control can be judged effective if
the board of directors
and
management have reasonable assurance that
unauthorized acquisition, use
or
disposition of the entity's assets that could
have a material effect on the
financial
statements is being prevented or detected on a
timely basis.
C2.
For example, a company has safeguarding controls
over inventory tags
(preventive
controls) and also performs periodic physical
inventory counts (detective
control)
timely in relation to its quarterly and annual
financial reporting dates.
Although
the
physical inventory count does not safeguard the
inventory from theft or loss,
it
prevents
a material misstatement to the financial
statements if performed effectively
and
timely.
C3.
Therefore, given that the definitions of
material weakness and
significant
deficiency
relate to the likelihood of misstatement of the
financial statements, the
failure
of
a preventive control such as inventory tags will
not result in a significant deficiency
or
material
weakness if the detective control (physical
inventory) prevents a
misstatement
of
the financial statements. The COSO Addendum also
indicates that to the extent
that
such
losses might occur, controls over financial
reporting are effective if they
provide
reasonable
assurance that those losses are properly
reflected in the financial
statements,
thereby alerting financial statement users to
consider the need for action.
Note:
Properly reflected in the financial statements
includes both correctly
recording
the loss and adequately disclosing the
loss.
C4.
Material weaknesses relating to controls over
the safeguarding of assets
would
only
exist when the company does not have effective
controls (considering both
safeguarding
and other controls) to prevent or detect a
material misstatement of the
financial
statements.
C5.
Furthermore, management's plans that could
potentially affect financial
reporting
in
future periods are not controls. For example, a
company's business continuity
or
contingency
planning has no effect on the company's current
abilities to initiate,
authorize,
record, process, or report financial data.
Therefore, a company's business
continuity
or contingency planning is not part of internal
control over financial
reporting.
C6.
The COSO Addendum provides further information
about safeguarding of assets
as
it relates to internal control over financial
reporting.
. |
|
| | |
