From Profitable Sarbanes-Oxley Compliance: Attain Improved Shareholder Value and Bottom-Line Results
AUDIT STANDARDS FOR THE NONAUDITOR
Before Sarbanes-Oxley, the audit report required that the financial statements be presented in accordance with GAAP along with appropriate footnote disclosures. Now we have new rules of the road, and auditors are auditing not only the financial statements but management's assessment of internal control. The PCAOB to date has issued three new audit standards, the details of which can be accessed and downloaded from its web site. Audit Standard No. 1 deals with References in Auditors' Reports to the Standards of the Public Company Accounting Oversight Board. Standard No. 1 accepted the AICPA's Statement on Auditing Standards No. 95: Generally Accepted Auditing Standards. Essentially, new audit reports will state that they were conducted in accordance with the standards of the PCAOB. Audit Standard No. 2 deals with auditing internal control over financial reporting, and Audit Standard No. 3 covers audit documentation. We will discuss these new standards in more depth, especially Audit Standard No. 2, which deals with an audit of internal control.
Audit Standard No. 2 represents the biggest change to both preparers and auditors because it deals with compliance under Section 404, which requires management to assess internal controls over financial reporting. Auditors are required to audit management's assessment of internal control. It is helpful for preparers to understand the audit requirements since this will provide guidance on how to conduct their assessment and prepare for the audit.
Key elements of Standard No. 2 require the auditor to evaluate management's assessment of internal...
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CONTROL DEFICIENCIES Control deficiencies are defined in Audit Standard No. 2 and are important enough to warrant a separate discussion. A control deficiency exists when the design or operation of a...
TWO SETS OF AUDIT STANDARDS Along with Sarbanes-Oxley came the concept of a different audit combined with management's assessment of internal control. Our focus here is to clarify the two audit...
OVERVIEW Section 404 of the Sarbanes-Oxley Act brings new reality to management teams with the realization that they must assess the effectiveness of their internal controls. While there are a...
NEW WORLD OF GOVERNANCE A new component of the audit process under Sarbanes-Oxley is the role of the audit committee. Previously, it was the norm for audit firms and management to have very close...
1. Introduction In many companies, the Board of Directors has several ongoing committees: Audit, Finance, Corporate Governance, Compensation, Technology, and more recently Risk Management, being...
