Upload
latifah-pugh
View
19
Download
1
Embed Size (px)
DESCRIPTION
Statement on Auditing Standards (SAS) 112. Communicating Internal Control Related Matters Identified in an Audit. SAS 112. Effective date – June 30, 2007 Issued in May 2006 Objectives Define internal control deficiencies Define the auditor’s reporting requirements Impact. SAS 112 – Impact. - PowerPoint PPT Presentation
Citation preview
Statement on Auditing Standards (SAS) 112
Communicating Internal Control Related Matters Identified in an Audit
SAS 112
Effective date – June 30, 2007 Issued in May 2006 Objectives
Define internal control deficienciesDefine the auditor’s reporting requirements
Impact
SAS 112 – Impact
Internal Control ProcessReasonable assurance of financial reportingSafeguarding assetsConsists of 5 interrelated components
(COSO)
SAS 112 – Impact
COSO
SAS 112 – Impact
Auditor Scope of Internal Control (I/C)No expression of an opinionMust consider the internal control in the
nature, timing and extent of audit proceduresMay place reliance on the I/C Must test controls of major federal program
under the single audit
SAS 112 – Type of Deficiencies
Material Weakness Significant Deficiency Control Deficiency
SAS 112 – Type of Deficiencies
Control Deficiency “exists when the design or operation of a control
does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.”
Design deficiency Operation deficiency
SAS 112 – Type of Deficiencies
Significant Deficiency “a control deficiency or combination of deficiencies
that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the f/s that is more than inconsequential will not be prevented or detected.”
SAS 112 – Type of Deficiencies
Significant Deficiency, cont’d More than remote likelihood –
Chance of an event occurring is more than slight but less than likely
Reasonably possible
More than inconsequential – “Prudent official, reasonable person” concept Quantitative and qualitative assessment Approximately 20% of tolerable misstatement
SAS 112 – Type of Deficiencies
Material Weakness A significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material misstatement of the f/s will not be prevented or detected.
SAS 112 – Previous Definitions
Material Weakness (SAS 60) A reportable condition in which the design or
operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.
SAS 112 vs. SAS 60
Material Weakness
Significant Deficiency
Control Deficiency
Material Weakness
Reportable Condition
Mgmt Letter Comment
SAS 112 SAS 60
Evaluating Control Deficiencies
Evaluation:Depends on the potential for misstatement
Management Acceptance:Conscious decisions on the part of
management to accept a degree of risk does not preclude auditor communication
Evaluating Control Deficiencies
Examples of significant deficiencies: Inadequate selection and application of GAAPLack of antifraud programs and controlsLack of controls over non-routine transactionsLack of controls over period end financial
reporting
Evaluating Control Deficiencies
Examples of material weaknesses:Restatement of previously issued financial
statements or prior-period adjustments Identification of a misstatement by the auditor
(not initially detected by I/C) Ineffective risk assessment function Ineffective compliance monitoringFailure to assess previous deficiencies
Auditor Reporting
Significant deficiencies and material weaknesses must be reported to “those charged with governance”
Communication is best made by the report release date but should be made no later than 60 days following the release date
Concluding Remarks
SAS 112 is not just an Auditor-Controller (A/C) issueGood internal control is a County-wide
responsibilityTimely coordination with departments and A/C
office is key
Questions?