[AUD] Internal Control (IC TOC vs FS TOC) integrate audit

 

IC Audit

 

SOX 2002 > fairness of FS + effectiveness of IC

section 404 > IC reporting by mgt

404a. Requires mgt assess IC ws FS

a. resp evaluating

b. framework for evaluating

c. assessment effectiveness of IC

d. auditor issued report

404b. Requires Cpa firm to audit IC and Op

 

1. Plan

'as of date'

understanding the company's industry, regulation

addressing the risk of fraud

- unusual T

- related T

- sig mgt estimate

use the work of other

entity level controls

 

2. Top-down approach

Entity level( control environment, risk assessment, information communication, monitoring, existing control activity)

FS

significant account/disclosure

Relevant assertions

- existence/occurrence

- completeness

- valuation

ID controls to test

- routine T

- nonroutine T

- estimation T

 

3. Test design & operating effectiveness of controls

Design, Implementation, suitable > walkthrough (inquiry, inspection, observation)

operating effectively > walkthrough + reperformance

 

4. Evaluate IDed deficiencies

any deficiencies ided must be considered

indicators of MW

- senior mgt fraud

- restatement to reflect a correction of a misstatement

- id by auditor, not detected by company's IC

- Ineffective oversight of external reporting, IC by audit committee

 

5. Wrap up

1) Auditor's Report

UQ > no material W

A    > one or more W

withdraw/ disclaim > scope limi

* MW in Adverse should be report to mgt, audit committee

* mgt is required to provide assurance regarding IC, but this does not effect auditor with providing opinion on IC

 

mgt's IC report

strange info > disclaim on that info

imcomplete > + Ex + IC op

 

2) Rep letter

 

3) Communication

ineffective oversight by audit committee	BOD		Written
deficiency	mgt
SD /MW	mgt, audit committee	prior to report date	Written

* not corrected > should recommunicated

 

Test of control (FS vs IC)

	IC related to FS audit	IC over FR
Mgt report	Financial Statement	mgt's assessment a. resp evaluating b. framework for evaluating c. assessment effectiveness of IC d. auditor issued report
auditor report	UQ, UQ+EM7/OM5,Q,A,D	UQ, UQ+EM2,A,D
purpose	to determine N, T, E of ST	express opinion of effectiveness of IC
TOC	may	Must
procedure/ scope	similar	more extensive
report restriction	restricted ( IC deficiency report)	not restricted ( IC audit report)
deficiencies	prevent, detect, correct	prevent, detect

 

 

Report on Internal Controls

	Independent Auditor's Report
O	Audit FS of X company
	in our opinion
B	Audit accordance w GAAS
	Refer to A section
	independent and ethical
	sufficient appropriate evidence
M	FS(GAAP)
	internal control
	Gong concern
A	reasonable assurance
	Provide an opinion
	GAAS, Fraud, MM
	Professional judgement, assess risk of MM(test) base
	understand IC
	appropriate accounting policy & estimate
	Gong concern
Report on ICFR(cross refer)