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Sarbanes Oxley Act -
Auditing Standards |
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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
190. Management's Report Containing Additional
Information. Management's report
on internal control over financial reporting
may contain information in addition to
management's assessment of the effectiveness
of its internal control over financial
reporting. Such information might include, for
example:
• Disclosures about corrective actions taken
by the company after the date
of management's assessment;
• The company's plans to implement new
controls; and
• A statement that management believes the
cost of correcting a material
weakness would exceed the benefits to be
derived from implementing new
controls.
191. If management's assessment includes such
additional information, the auditor
should disclaim an opinion on the information.
For example, the auditor should use the
following language as the last paragraph of
the report to disclaim an opinion on
management's cost-benefit statement:
We do not express an opinion or any other form
of assurance on management's
statement referring to the costs and related
benefits of implementing new
controls.
192. If the auditor believes that management's
additional information contains a
material misstatement of fact, he or she
should discuss the matter with management. If
the auditor concludes that there is a valid
basis for concern, he or she should propose
that management consult with some other party
whose advice might be useful, such as
the company's legal counsel. If, after
discussing the matter with management and
those management has consulted, the auditor
concludes that a material misstatement
of fact remains, the auditor should notify
management and the audit committee, in
writing, of the auditor's views concerning the
information. The auditor also should
consider consulting the auditor's legal
counsel about further actions to be taken,
including the auditor's responsibility under
Section 10A of the Securities Exchange Act
of 1934.24/
24/ See Section 10A of the Securities Exchange
Act of 1934, 15 U.S.C. 78j-1.
Note: If management makes the types of
disclosures described in paragraph
190 outside its report on internal control
over financial reporting and includes
them elsewhere within its annual report on the
company's financial statements,
the auditor would not need to disclaim an
opinion, as described in paragraph
191. However, in that situation, the auditor's
responsibilities are the same as
those described in paragraph 192 if the
auditor believes that the additional
information contains a material misstatement
of fact.
24/ See Section 10A of the Securities Exchange
Act of 1934, 15 U.S.C. 78j-1.
193. Effect of Auditor's Adverse Opinion on
Internal Control Over Financial Reporting
on the
Opinion on Financial Statements.
In some cases, the auditor's report on
internal
control over financial reporting might
describe a material weakness that resulted in
an
adverse opinion on the effectiveness of
internal control over financial reporting
while the
audit report on the financial statements
remains unqualified. Consequently, during the
audit of the financial statements, the auditor
did not rely on that control. However, he or
she performed additional substantive
procedures to determine whether there was a
material misstatement in the account related
to the control. If, as a result of these
procedures, the auditor determines that there
was not a material misstatement in the
account, he or she would be able to express an
unqualified opinion on the financial
statements.
194. When the auditor's opinion on the
financial statements is unaffected by the
adverse opinion on the effectiveness of
internal control over financial reporting, the
report on internal control over financial
reporting (or the combined report, if a
combined
report is issued) should include the following
or similar language in the paragraph that
describes the material weakness:
This material weakness was considered in
determining the nature, timing, and
extent of audit tests applied in our audit of
the 20X3 financial statements, and this
report does not affect our report dated [date
of report] on those financial
statements. [Revise this wording appropriately
for use in a combined report.]
195. Such disclosure is important to ensure
that users of the auditor's report on the
financial statements understand why the
auditor issued an unqualified opinion on those
statements.
196. Disclosure is also important when the
auditor's opinion on the financial
statements is affected by the adverse opinion
on the effectiveness of internal control
over financial reporting. In that
circumstance, the report on internal control
over
financial reporting (or the combined report,
if a combined report is issued) should
include the following or similar language in
the paragraph that describes the material
weakness:
This material weakness was considered in
determining the nature, timing, and
extent of audit tests applied in our audit of
the 20X3 financial statements.
197. Subsequent Discovery of Information
Existing at the Date of the Auditor's Report
on
Internal Control Over Financial Reporting.
After the issuance of the report on
internal control over financial reporting, the
auditor may become aware of conditions
that existed at the report date that might
have affected the auditor's opinions had he or
she been aware of them. The auditor's
evaluation of such subsequent information is
similar to the auditor's evaluation of
information discovered subsequent to the date
of
the report on an audit of financial
statements, as described in AU sec. 561,
Subsequent
Discovery
of Facts Existing at the Date of the Auditor's
Report.
That standard requires
the auditor to determine whether the
information is reliable and whether the facts
existed at the date of his or her report. If
so, the auditor should determine (1) whether
the facts would have changed the report if he
or she had been aware of them and (2)
whether there are persons currently relying on
or likely to rely on the auditor's report.
For instance, if previously issued financial
statements and the auditor's report have
been recalled and reissued to reflect the
correction of a misstatement, the auditor
should presume that his or her report on the
company's internal control over financial
reporting as of same specified date also
should be recalled and reissued to reflect the
material weakness that existed at that date.
Based on these considerations, paragraph
.06 of AU sec. 561 provides detailed
requirements for the auditor.
198. Filings Under Federal Securities
Statutes. AU sec. 711, Filings Under Federal
Securities
Statutes,
describes the auditor's responsibilities when
an auditor's report is
included in registration statements, proxy
statements, or periodic reports filed under
the
federal securities statutes. The auditor
should also apply AU sec. 711 with respect to
the auditor's report on management's
assessment of the effectiveness of internal
control
over financial reporting included in such
filings.
In addition, the direction in paragraph .10 of
AU sec. 711 to inquire of and obtain written
representations from officers and other
executives responsible for financial and
accounting
matters about whether any events have occurred
that have a material effect on the audited
financial
statements should be extended to matters that
could have a material effect on management's
assessment of internal control over financial
reporting.
199. When the auditor has fulfilled these
responsibilities and intends to consent to the
inclusion of his or her report on management's
assessment of the effectiveness of
internal control over financial reporting in
the securities filing, the auditor's consent
should clearly indicate that both the audit
report on financial statements and the audit
report on management's assessment of the
effectiveness of internal control over
financial reporting (or both opinions if a
combined report is issued) are included in his
or
her consent.
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