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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-3
ILLUSTRATIVE REPORT
EXPRESSING A QUALIFIED OPINION
ON
MANAGEMENT'S
ASSESSMENT OF THE EFFECTIVENESS OF
INTERNAL
CONTROL OVER
FINANCIAL REPORTING AND A QUALIFIED OPINION ON
THE
EFFECTIVENESS OF
INTERNAL CONTROL OVER FINANCIAL
REPORTING
BECAUSE OF A
LIMITATION ON THE SCOPE OF THE
AUDIT
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
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)."].
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]
Except
as described below, we conducted our audit in
accordance 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.
[Explanatory
paragraph that describes scope
limitation]
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.1/ Prior to
December
20, 20X3, W Company had an inadequate system for
recording cash
receipts,
which could have prevented the Company from
recording cash receipts on
accounts
receivable completely and properly. Therefore,
cash received could have
been
diverted for unauthorized use, lost, or
otherwise not properly recorded to
accounts
receivable.
We
believe this condition was a material weakness
in the design or
operation
of the internal control of W Company in effect
prior to December 20, 20X3.
Although
the Company implemented a new cash receipts
system on December 20,
20X3,
the system has not been in operation for a
sufficient period of time to enable us
to
obtain
sufficient evidence about its operating
effectiveness.
1/
If the auditor has identified a material
weakness that is not included
in
management's
assessment, add the following wording to the
report: "In addition, we
have
identified the following material weakness that
has not been identified as a
material
weakness in management's
assessment."
[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.
[Opinion
paragraph]
In
our opinion, except for the effect of matters we
might have discovered had we
been
able
to examine evidence about the effectiveness of
the new cash receipts system,
management's
assessment that W Company maintained 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,
except for the effect of matters we
might have discovered had we been
able
to examine evidence about the effectiveness of
the new cash receipts system, W Company
maintained, in all material respects, 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)."].
[Explanatory
paragraph]
We
have also audited, in accordance with the
standards of the Public Company
Accounting
Oversight Board (United States), the [identify
financial statements] of W
Company
and our report dated [date of report, which
should be the same as the date
of
the report on the
effectiveness of internal control over financial
reporting]
expressed
[include
nature of opinion].
[Signature]
[City
and State or Country]
[Date]
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