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Sarbanes Oxley Act -
Auditing Standards |
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Public
Company Accounting Oversight
Board
Bylaws
and Rules – Standards – AS2
Auditing
Standard No. 2: An Audit of Internal Control
Over Financial Reporting Performed in
Conjunction With an Audit of Financial
Statements
Auditor's
Responsibilities for Evaluating Management's
Certification
Disclosures About
Internal Control Over Financial
Reporting
Required Management
Certifications
200.
Section 302 of the Act, and Securities Exchange
Act Rule 13a-14(a) or 15d-
14(a),
whichever applies,25/ requires a company's
management, with the participation
of
the
principal executive and financial officers (the
certifying officers), to make
the
following
quarterly and annual certifications with respect
to the company's internal
control
over financial reporting:
• A
statement that the certifying officers are
responsible for establishing
and
maintaining
internal control over financial
reporting;
• A
statement that the certifying officers have
designed such internal control
over
financial reporting, or caused such internal
control over financial
reporting
to be designed under their supervision, to
provide reasonable
assurance
regarding the reliability of financial reporting
and the
preparation
of financial statements for external purposes in
accordance
with
generally accepted accounting principles;
and
• A
statement that the report discloses any changes
in the company's
internal
control over financial reporting that occurred
during the most
recent
fiscal quarter (the company's fourth fiscal
quarter in the case of an
annual
report) that have materially affected, or are
reasonably likely to
materially
affect, the company's internal control over
financial reporting.
25/
See 17 C.F.R., 240.13a-14a or 15d-14a, whichever
applies.
201.
When the reason for a change in internal control
over financial reporting is the
correction
of a material weakness, management has a
responsibility to determine and
the
auditor should evaluate whether the reason for
the change and the
circumstances
surrounding
that change are material information necessary
to make the disclosure
about
the change not misleading.26
26/
See Securities Exchange Act Rule 12b-20, 17
C.F.R. 240.12b-20.
Auditor Evaluation
Responsibilities
202.
The auditor's responsibility as it relates to
management's quarterly
certifications
on
internal control over financial reporting is
different from the auditor's responsibility
as
it
relates to management's annual assessment of
internal control over financial
reporting.
The auditor should perform limited procedures
quarterly to provide a basis
for
determining
whether he or she has become aware of any
material modifications that, in
the
auditor's judgment, should be made to the
disclosures about changes in
internal
control
over financial reporting in order for the
certifications to be accurate and
to
comply
with the requirements of Section 302 of the
Act.
203.
To fulfill this responsibility, the auditor
should perform, on a quarterly basis,
the
following
procedures:
•
Inquire of management about significant changes
in the design or
operation
of internal control over financial reporting as
it relates to the
preparation
of annual as well as interim financial
information that could
have
occurred subsequent to the preceding annual
audit or prior review of
interim
financial information;
•
Evaluate the implications of misstatements
identified by the auditor as
part
of
the auditor's required review of interim
financial information (See AU
sec.
722, Interim Financial Information) as it
relates to effective internal
control
over financial reporting; and
•
Determine, through a combination of observation
and inquiry, whether any
change
in internal control over financial reporting has
materially affected,
or
is reasonably likely to materially affect, the
company's internal control
over
financial reporting.
Note:
Foreign private issuers filing Forms 20-F and
40-F are not subject to
quarterly
reporting requirements, therefore, the auditor's
responsibilities would
extend
only to the certifications in the annual report
of these companies.
204.
When matters come to auditor's attention that
lead him or her to believe that
modification
to the disclosures about changes in internal
control over financial
reporting
is
necessary for the certifications to be accurate
and to comply with the requirements
of
Section
302 of the Act and Securities Exchange Act Rule
13a-14(a) or 15d-14(a),
whichever
applies,27/ the auditor should communicate the
matter(s) to the appropriate
level
of management as soon as
practicable.
27/
See 17 C.F.R. 240.13a-14(a) or 17 C.F.R.
240.15d-14(a), whichever
applies.
205.
If, in the auditor's judgment, management does
not respond appropriately to
the
auditor's
communication within a reasonable period of
time, the auditor should inform
the
audit committee. If, in the auditor's judgment,
the audit committee does not
respond
appropriately
to the auditor's communication within a
reasonable period of time, the
auditor
should evaluate whether to resign from the
engagement. The auditor should
evaluate
whether to consult with his or her attorney when
making these evaluations.
In
these circumstances, the auditor also has
responsibilities under AU sec. 317,
Illegal
Acts by
Clients, and Section 10A of
the Securities Exchange Act of 1934.28/
The
auditor's
responsibilities for evaluating the disclosures
about changes in internal
control
over
financial reporting do not diminish in any way
management's responsibility for
ensuring
that its certifications comply with the
requirements of Section 302 of the
Act
and
Securities Exchange Act Rule 13a-14(a) or
15d-14(a), whichever
applies.29/
28/
See 15 U.S.C. 78j-1.
29/
See 17 C.F.R. 240.13a-14(a) or 17 C.F.R.
240.15d-14(a), whichever
applies.
206.
If matters come to the auditor's attention as a
result of the audit of internal
control
over
financial reporting that lead him or her to
believe that modifications to
the
disclosures
about changes in internal control over financial
reporting (addressing
changes
in internal control over financial reporting
occurring during the fourth
quarter)
are
necessary for the annual certifications to be
accurate and to comply with the
requirements
of Section 302 of the Act and Securities
Exchange Act Rule 13a-14(a) or
15d-14(a),
whichever applies,30/ the auditor should follow
the same communication
responsibilities
as described in paragraphs 204 and 205.
However,
if management and the audit committee do not
respond appropriately, in
addition
to the responsibilities described in the
preceding two paragraphs, the auditor
should
modify his or her report on the audit of
internal control over financial reporting
to
include
an explanatory paragraph describing the reasons
the auditor believes management's disclosures
should be modified.
30/
See 17 C.F.R. 240.13a-14(a) or 17 C.F.R.
240.15d-14(a), whichever
applies.
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