In the context of governmental accounting and reporting, the management setting has a direct impression on an entity’s capacity to collect and present correct monetary information. Thus, the internal management surroundings and associated procedures are key areas of concern to an entity’s external auditor.
.C6 The auditor may concern a report disclaiming an opinion on inside management over monetary reporting as soon because the auditor concludes that a scope limitation will prevent the auditor from acquiring the reasonable assurance essential to precise an opinion. The auditor isn’t required to perform any further work previous to issuing a disclaimer when the auditor concludes that he or she will be unable to acquire enough evidence to precise an opinion.
.98 After the issuance of the report on inner management over monetary reporting, the auditor might turn out to be aware of situations that existed at the report date that may have affected the auditor’s opinion had she or he been conscious of them. The auditor’s evaluation of such subsequent information is similar to the auditor’s analysis of data discovered subsequent to the date of the report on an audit of financial statements, as described in AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report . The auditor ought to talk this data to the audit committee in a timely method and previous to the issuance of the auditor’s report on inner management over monetary reporting. When making this communication, it’s not needed for the auditor to repeat information about such deficiencies that has been included in previously issued written communications, whether these communications were made by the auditor, inner auditors, or others throughout the organization. .22 The auditor must test those entity-stage controls which are necessary to the auditor’s conclusion about whether the corporate has efficient inner control over financial reporting.
.76 The failure to obtain written representations from management, together with management’s refusal to furnish them, constitutes a limitation on the scope of the audit. As discussed further in paragraph .C3, when the scope of the audit is restricted, the auditor should both withdraw from the engagement or disclaim an opinion. Further, the auditor ought to consider the consequences of management’s refusal on his or her capability to rely on other representations, including these obtained within the audit of the company’s monetary statements. .49 The evidence offered by the auditor’s checks of the effectiveness of controls relies upon upon the combo of the nature, timing, and extent of the auditor’s procedures. Further, for a person management, different mixtures of the character, timing, and extent of testing could present adequate proof in relation to the chance associated with the management. Performing walkthroughs will frequently be the best way of reaching the aims in paragraph .34.
The dedication of whether or not an assertion is a relevant assertion is predicated on inherent danger, without regard to the impact of controls. .A4 Financial statements and associated disclosures refers to a company’s monetary statements and notes to the monetary statements as introduced in accordance with typically accepted accounting rules (“GAAP”). References to financial statements and related disclosures do not extend to the preparation of management’s discussion and evaluation or different related monetary info introduced outdoors an organization’s GAAP-foundation financial statements and notes. .ninety five The auditor might inquire about and look at other documents for the following period. Paragraphs .01 via .09 of AS 2801, Subsequent Events , provide course on subsequent occasions for a monetary statement audit that additionally may be useful to the auditor performing an audit of inside control over monetary reporting. Information in regards to the effectiveness of the company’s internal control over financial reporting obtained by way of different engagements.
.fifty seven In subsequent years’ audits, the auditor ought to incorporate knowledge obtained during past audits he or she carried out of the company’s internal management over monetary reporting into the decision-making process for figuring out the nature, timing, and extent of testing necessary. Identify the controls that management has implemented over the prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s property that would lead to a fabric misstatement of the monetary statements. .16 The auditor should evaluate the extent to which she or he will use the work of others to cut back the work the auditor might otherwise carry out himself or herself. AS 2605, Consideration of the Internal Audit Function, applies in an integrated audit of the financial statements and inner management over financial reporting. In the ultimate evaluation, sustaining the interior control surroundings and related management procedures is an integral a part of management’s duties.
The dedication of whether or not an account or disclosure is important relies on inherent risk, without regard to the impact of controls. .eighty three Because the audit of inside management over financial reporting does not provide the auditor with assurance that she or he has recognized all deficiencies less extreme than a fabric weak spot, the auditor mustn’t concern a report stating that no such deficiencies were noted during the audit. .78 The auditor must communicate, in writing, to administration and the audit committee all material weaknesses identified in the course of the audit. The written communication ought to be made prior to the issuance of the auditor’s report on inside control over monetary reporting. .seventy three If the auditor determines that any required components of management’s annual report on internal management over financial reporting are incomplete or improperly introduced, the auditor should comply with the course in paragraph .C2.
Obtaining a service auditor’s report on controls positioned in operation and exams of operating effectiveness, or a report on the applying of agreed-upon procedures that describes relevant exams of controls. .B9 To acquire proof about whether or not a specific management is effective, the management have to be examined directly; the effectiveness of a management cannot be inferred from the absence of misstatements detected by substantive procedures. The absence of misstatements detected by substantive procedures, nevertheless, ought to inform the auditor’s threat assessments in figuring out the testing necessary to conclude on the effectiveness of a management. .A9 A relevant assertion is a financial assertion assertion that has an affordable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated.
The auditor’s evaluation of entity-stage controls may end up in increasing or reducing the testing that the auditor otherwise would have performed on other controls. .06 The audit of internal control over monetary reporting ought to be integrated with the audit of the monetary statements. The objectives of the audits aren’t similar, nonetheless, and the auditor should plan and perform the work to achieve the aims of both audits. .C11 When the auditor decides to make reference to the report of the opposite auditor as a basis, partially, for his or her opinion on the company’s internal management over financial reporting, the auditor should refer to the report of the opposite auditor when describing the scope of the audit and when expressing the opinion. .B27 The auditor shouldn’t refer to the service auditor’s report when expressing an opinion on inside control over monetary reporting. .B25 The auditor should determine whether or not to obtain additional evidence concerning the operating effectiveness of controls at the service group primarily based on the procedures performed by administration or the auditor and the outcomes of these procedures and on an evaluation of the next danger elements. As risk will increase, the need for the auditor to acquire extra evidence will increase.
.ninety three Changes in inside control over monetary reporting or different factors that might significantly have an effect on inner control over financial reporting might happen subsequent to the date as of which inside management over financial reporting is being audited however earlier than the date of the auditor’s report. The auditor ought to inquire of administration whether or not there were any such modifications or factors and procure written representations from administration regarding such issues, as described in paragraph .75h. .87 The following example combined report expressing an unqualified opinion on financial statements and an unqualified opinion on internal management over monetary reporting illustrates the report components described on this section.