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Statement of auditing standards 112
Term Paper ID:43020
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Essay Subject:
This paper examines the impact of the new Statement of Auditing Standard Number as ...... More...
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2 Pages / 450 Words
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Paper Abstract:
This paper examines the impact of the new Statement of Auditing Standard Number 112 as defined are created by the American Institute Of Certified Public Accountants. This new auditing standard assists external auditors and identifying material deficiencies in internal controls that could result in a material misstatement of the company's financial statements. SAS 112 provide specific guidance to external auditors about what to look for and how to communicate problems identified to the appropriate parties within the client organization.1
Paper Introduction:
Internal Memorandum on SAS In May of the American Institute of Certified PublicAccountants issued the Statement of Auditing Standards Number Communicating Internal Control Related Matters Identified in an Audit According to a document published online by the American Institute ofCertified Public Accountants SAS establishes responsibilities standards and guidance for auditors during a financial statement auditengagement relating to identifying and evaluating a client company\'sinternal controls over financial reporting This auditing standardrequires auditors to report in writing to management any controldeficiencies found during the
Text of the Paper:
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For example, SAS 112 states that a controldeficiency exists when the design or operation of the control does notallow management or employees in performing their assigned functions, toprevent or detect misstatements in a timely manner. We must be aware of the potential increase in time necessaryto prepare findings, and I recommend that we factor this in when quotingprices to both new and existing audit clients. References"Peer Review Guidance for SAS 112." AICPA Downloads. Our audit mayalso require additional time in order to properly assess the severity ofinternal control deficiencies if it becomes apparent that a client has suchdeficiencies. Review this document suggests that the guidance provided to us by SAS112 is quite explicit. In addition, implementationof SAS 112 may actually generate an additional revenue stream as a resultof additional work done with client companies once a control deficiency ora material weakness has been identified. 3 Apr 2 9 . SAS 112 clarifiesthat the significance of a control efficiency identified by us as theexternal auditor is dependent on the potential for misstatement of thefinancial statements, and not whether a misstatement has actually occurred.The objective of this auditing standard is to provide new definitionsguidance to assist us as auditors in identifying and evaluating controldeficiencies during an audit, and then communicating to management aboutthose deficiencies. 2 6. Similarly, adeficiency in design is described or defined as one that exists when acontrol necessary to meet the control objective is missing, or when thecontrol is not properly designed so that even if it operates as intended,the control objective is not always met. It is clear from the comments of the AICPA that full compliance byour company with SAS 112 during every client audit may increase our auditengagement fees because of the new requirement to communicate identifiedsignificant deficiencies and material weaknesses in writing. Internal Memorandum on SAS 112 In May of 2 6, the American Institute of Certified PublicAccountants issued the Statement of Auditing Standards Number 112,Communicating Internal Control Related Matters Identified in an Audit.According to a document published online by the American Institute ofCertified Public Accountants, SAS 112 establishes responsibilities,standards and guidance for auditors during a financial statement auditengagement relating to identifying and evaluating a client company'sinternal controls over financial reporting. It provides guidance to auditor on how tocommunicate, in writing, to management and to those responsible forcorporate governance information relating to significant deficiencies andmaterial weaknesses that were identified during the audit. American Institute Of Certified Public Accountants. Although internal control has always been a critical managementfunction, the changes in audit reporting requirements embodied in SAS 112emphasize the importance that company management must place on designingand implementing an effective internal control program. A material weakness is asignificant deficiency or combination of deficiencies that results in morethan a remote likelihood that a material misstatement of the financialcondition of an organization being audited will not be prevented ordetected. It is important to remember that SAS 112, while mandatory, involves avaluable and necessary service for our clients. Our firm can advise the client'sexecutive management, the audit committee, or the accounting and financestaff on ways to improve internal controls and prevent intentional orunintentional misstatements of the organization's financial statements(Peer-Review Guidance for SAS 112). This auditing standard defines both the term "significant deficiency"and "material weakness." It provides guidance to us relating to evaluatingthe severity of control deficiencies identified in an audit of a client'sfinancial statements. This auditing standardrequires auditors to report in writing to management any controldeficiencies found during the audit that are considered to be eithersignificant deficiencies or material weaknesses.
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