TAILIEUCHUNG - Lecture Auditing & assurance services (8e) - Chapter 7: Auditing internal control over financial reporting

After reading the material in this chapter, you should be able to: Understand management's responsibilities for reporting on internal control under section 404 of the sarbanes-oxley act, understand the auditor's responsibilities for reporting on internal control under section 404 of the sarbanes-oxley act, know the definition of internal control over financial reporting (ICFR),. | Chapter 7 Auditing Internal Control over Financial Reporting McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Management Responsibilities under Section 404 Management must comply with the following requirements in order for the external auditor to complete an audit of ICFR. Accept responsibility for the effectiveness of the entity’s ICFR. Evaluate the effectiveness of the entity’s ICFR using suitable control criteria. Support the evaluation with sufficient evidence, including documentation. Present a written assessment regarding the effectiveness of the entity’s ICFR as of the end of the entity’s most recent fiscal year. LO# 1 7- Auditor Responsibilities under Section 404 and AS5 The entity’s independent auditor must audit and report on the effectiveness of ICFR. The auditor is required to conduct an integrated audit of the entity’s ICFR and its financial statements. LO# 2 7- ICFR Defined ICFR is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Controls include procedures that: Pertain to the maintenance of records that fairly reflect the transactions and dispositions of the assets of the company. Provide reasonable assurance that transactions are recorded in accordance with GAAP. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets. LO# 3 7- Internal Control Deficiencies Defined Material Not material but significant Not material or significant Remote Reasonably possible or probable Material weakness Significant deficiency Control deficiency L I K E L I H O O D M A G N I T U D E LO# 4 Report externally to audit committee and to management Report to audit committee and to management Report to management 7- Management’s Assessment Process Management must follow a top-down,

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