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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
Example
A-2
ILLUSTRATIVE
REPORT EXPRESSING AN UNQUALIFIED OPINION
ON
MANAGEMENT'S
ASSESSMENT OF THE EFFECTIVENESS OF
INTERNAL
CONTROL OVER
FINANCIAL REPORTING AND AN ADVERSE OPINION ON
THE
EFFECTIVENESS OF
INTERNAL CONTROL OVER FINANCIAL
REPORTING
BECAUSE OF THE
EXISTENCE OF A MATERIAL
WEAKNESS
Report of
Independent Registered Public Accounting
Firm
[Introductory
paragraph]
We have audited
management's assessment, included in the
accompanying [title
of
management's
report], that W Company
did not maintain effective internal control
over
financial
reporting as of December 31, 20X3, because of
the effect of [material
weakness
identified in management's
assessment], based on [Identify
criteria, for
example, "criteria
established in Internal Control—Integrated
Framework issued by the
Committee of
Sponsoring Organizations of the Treadway
Commission (COSO)."].
W
Company's
management is responsible for maintaining
effective internal control
over
financial
reporting and for its assessment of the
effectiveness of internal control
over
financial
reporting.
Our responsibility
is to express an opinion on
management's
assessment and an
opinion on the effectiveness of the company's
internal control over
financial
reporting based on our
audit.
[Scope
paragraph]
We conducted our
audit in accordance with the standards of the
Public Company
Accounting
Oversight Board (United States). Those standards
require that we plan and
perform the audit
to obtain reasonable assurance about whether
effective internal
control over
financial reporting was maintained in all
material respects. Our
audit
included obtaining
an understanding of internal control over
financial reporting,
evaluating
management's assessment, testing and evaluating
the design and operating
effectiveness of
internal control, and performing such other
procedures as we
considered
necessary in the circumstances. We believe that
our audit provides a
reasonable basis
for our opinion.
[Definition
paragraph]
A company's
internal control over financial reporting is a
process designed 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.
A company's
internal control over financial reporting
includes
those policies and
procedures that
(1) pertain to the
maintenance of records that, in reasonable
detail, accurately and fairly
reflect the
transactions and dispositions of the assets of
the company;
(2) provide
reasonable assurance that transactions are
recorded as necessary to permit
preparation of
financial statements in accordance with
generally accepted accounting
principles, and
that receipts and expenditures of the company
are being made only in
accordance with
authorizations of management and directors of
the company; and
(3) provide
reasonable assurance regarding prevention or
timely detection of unauthorized acquisition,
use, or disposition of the company's assets that
could have a material effect on the financial
statements.
[Inherent limitations
paragraph]
Because of its
inherent limitations, internal control over
financial reporting may not
prevent or detect
misstatements. Also, projections of any
evaluation of effectiveness
to
future periods are
subject to the risk that controls may become
inadequate because of
changes in
conditions, or that the degree of compliance
with the policies or
procedures
may
deteriorate.
[Explanatory
paragraph]
A material
weakness is a control deficiency, or combination
of control deficiencies,
that
results in more
than a remote likelihood that a material
misstatement of the annual
or
interim financial
statements will not be prevented or detected.
The following material
weakness has been
identified and included in management's
assessment. [Include
a
description of the
material weakness and its effect on the
achievement of the
objectives
of the control
criteria.]
This material
weakness was considered in determining
the
nature, timing,
and extent of audit tests applied in our audit
of the 20X3 financial
statements, and
this report does not affect our report dated
[date of report, which
should
be the same as the
date of this report on internal
control] on those
financial
statements.1/
1/ Modify this
sentence when the auditor's opinion on the
financial
statements is
affected by the adverse opinion on the
effectiveness of internal
control
over financial
reporting, as described in paragraph
196.
[Opinion
paragraph]
In our opinion,
management's assessment that W Company did not
maintain effective
internal control
over financial reporting as of December 31,
20X3, is fairly stated, in
all
material respects,
based on [Identify control criteria, for
example, "criteria established
in
Internal
Control—Integrated Framework issued by the
Committee of Sponsoring
Organizations of
the Treadway Commission
(COSO)."]. Also, in our
opinion, because of
the effect of the
material weakness described above on the
achievement of the
objectives of the
control criteria, W Company has not maintained
effective internal
control over
financial reporting as of December 31, 20X3,
based on [Identify
control
criteria, for
example, "criteria established in Internal
Control—Integrated
Framework
issued by the
Committee of Sponsoring Organizations of the
Treadway Commission
(COSO)."].
[Signature]
[City and State or
Country]
[Date]
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