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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
Example
A-6
ILLUSTRATIVE REPORT
EXPRESSING AN ADVERSE OPINION
ON
MANAGEMENT'S
ASSESSMENT OF THE EFFECTIVENESS OF
INTERNAL
CONTROL OVER
FINANCIAL REPORTING AND AN ADVERSE OPINION ON
THE
EFFECTIVENESS OF
INTERNAL CONTROL OVER FINANCIAL
REPORTING
BECAUSE OF THE
EXISTENCE OF A MATERIAL
WEAKNESS
Report
of Independent Registered Public Accounting
Firm
[Introductory
paragraph]
We
have audited management's assessment, included
in the accompanying [title
of
management's
report], that W Company
maintained effective internal control
over
financial
reporting as of December 31, 20X3, based on
[Identify control criteria,
for
example,
"criteria established in Internal
Control—Integrated Framework issued by
the
Committee of
Sponsoring Organizations of the Treadway
Commission (COSO)."].
W
Company's
management is responsible for maintaining
effective internal control over
financial
reporting and for its assessment of the
effectiveness of internal control
over
financial
reporting. Our responsibility is to express an
opinion on management's
assessment
and an opinion on the effectiveness of the
company's internal control over
financial
reporting based on our audit.
[Scope
paragraph]
We
conducted our audit in accordance with the
standards of the Public Company
Accounting
Oversight Board (United States). Those standards
require that we plan and
perform
the audit to obtain reasonable assurance about
whether effective internal
control
over financial reporting was maintained in all
material respects. Our audit
included
obtaining an understanding of internal control
over financial reporting,
evaluating
management's assessment, testing and evaluating
the design and operating
effectiveness
of internal control, and performing such other
procedures as we
considered
necessary in the circumstances. We believe that
our audit provides a
reasonable
basis for our opinion.
[Definition
paragraph]
A
company's internal control over financial
reporting is a process designed to
provide
reasonable
assurance regarding the reliability of financial
reporting and the preparation
of
financial statements for external purposes in
accordance with generally
accepted
accounting
principles. A company's internal control over
financial reporting includes
those
policies and procedures that
(1)
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly
reflect
the transactions and dispositions of the assets
of the company;
(2)
provide reasonable assurance that transactions
are recorded as necessary to permit
preparation
of financial statements in accordance with
generally accepted accounting
principles,
and that receipts and expenditures of the
company are being made only in
accordance
with authorizations of management and directors
of the company; and
(3)
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.
[Inherent limitations
paragraph]
Because
of its inherent limitations, internal control
over financial reporting may
not
prevent
or detect misstatements. Also, projections of
any evaluation of effectiveness
to
future
periods are subject to the risk that controls
may become inadequate because
of
changes
in conditions, or that the degree of compliance
with the policies or procedures
may
deteriorate.
[Explanatory
paragraph]
A
material weakness is a control deficiency, or
combination of control deficiencies,
that
results
in more than a remote likelihood that a material
misstatement of the annual or
interim
financial statements will not be prevented or
detected. We have identified
the
following
material weakness that has not been identified
as a material weakness in
management's
assessment [Include a description of the
material weakness and its
effect on the
achievement of the objectives of the control
criteria.] 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, which should be the same
as the date of this report
on
internal
control] on those financial
statements.1/
1/
Modify this sentence when the auditor's opinion
on the financial
statements
is affected by the adverse opinion on the
effectiveness of internal
control
over
financial reporting.
[Opinion
paragraph]
In
our opinion, because of the effect of the
material weakness described above on
the
achievement
of the objectives of the control criteria,
management's assessment that W
Company
maintained effective internal control over
financial reporting as of
December
31,
20X3, is not fairly stated, in all material
respects, based on [Identify control
criteria,
for
example, "criteria established in Internal
Control—Integrated Framework issued
by
the Committee of
Sponsoring Organizations of the Treadway
Commission (COSO)."].
Also,
in our opinion, because of the effect of the
material weakness described above
on
the
achievement of the objectives of the control
criteria, W Company has not
maintained
effective
internal control over financial reporting as of
December 31, 20X3, based on
[Identify
control criteria, for example, "criteria
established in Internal
Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway
Commission
(COSO)."].
[Signature]
[City
and State or Country]
[Date]
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