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Communication With Management and Those charged with Governance, can be…
Communication With Management and Those charged with Governance
Those Charged with Governance
During the audit, we need to establish an effective two-way communication with those charged with governance:
The planned scope and timing of the audit
Information held by those charged with governance that is relevant to the audit
Timely observations arising from the audit that are relevant to the oversight of the financial reporting process
Internal Control Communications
Definitions
:
Material Weakness
定义: Deficiency, or combination of deficiencies in internal control (Over financial reporting), such that there is a reasonable possibility that a material misstatement of the entity financial statement will not be prevented or detected and correct on the timely basis.
Four indicators of a material weakness in internal control over financial reporting
Identification of any level of fraud (Even immaterial fraud) perpetrated by senior management
Restatement of previously issued financial statements to correct a material misstatements
Identification by the auditor of a material misstatement that would not have been detected by the entity's system of internal control
Ineffective oversight by those charged with governance
Significant Deficiency
定义:A deficiency, or combination of deficiencies that is less severance than material weakness
Control Deficiency
定义:Design or operation of a control does not allow management or employees to prevent, or detect and correct misstatements on a timely basis
Applicability
I. Financial Statement Audit (Non-issuers)
Only need to express an opinion on the financial statement and not to express an opinion on the effectives of internal control, certain deficiencies related to internal control (Control deficiencies) may be noticed by the auditor during the audit.
Issuers
- Audit of Internal Control --
Public Company Accounting Oversight Board (PCAOB) auditing standards
Nonissuers
- Audit of internal Controls --
Statements on Auditing Standards (SAS)
II. Integrated Audits (Nonissuers and Issuers)
Communicaton of Control Deficiencies
Communicate the deficiency to Management
Either orally or in writing: Control Deficiency
In Writing: significant Deficiency and Material Weakness
Communicate the deficiency to those charged with governance
Only for Significant deficiency and material weakness
Communication Requirement
A description of significant deficiencies and material weakness and explanation of their potential effect
Sufficient information to let governance and management to understand
The definition of the term material weakness or significant deficiency
A restriction regarding to the use of communication
(限制只限于 management 和charged in government 使用
Question Note:
1.Previously communicated significant deficiencies that have not been corrected should be communicated again, in writing, during the current audit.
2.Certain matters communicated to those charged with governance, such as those related to the competence and integrity of management, might not be appropriate for discussion with management.
3.for audits of issuers, the communication must be made before the auditor's report is filled with the SEC
4.The SEC has strongly recommended that companies establish audit committees, but does not require this action.
5.The New York Stock Exchange requires listed companies to have audit committees.
Evidence of Failure in the operation of internal controls
1). Management override of controls
2). Undue Bias or lack of objectivity
3). Misrepresentation by client personnel
can be made in 60 days of the report release date