A long time client has been expanding rapidly and is considering taking the comp

Question

A long time client has been expanding rapidly and is considering taking the company public. The CEO is concerned about the increased costs of operating a public company as a result of the Sarbanes Oxley Act. He is also concerned about the audit fees that have doubled because of internal control provisions of the Act and PCAOB No.5

The CEO wants you to explain possible effects on the audit of complying with the requirement of Sarbanes-Oxley. Outline the changes in the audit due to Sarbanes Oxley and PCAOB No 5

Explanation / Answer

sarbanes-oxley will mean big changes for both auditors and the companies they audit.The auditor must attest to management’s assessment of the effectiveness of an entity’s internal controls using standards the Public Company Accounting Oversight Board issues or adopts. auditors should not be too closely involved with a company’s assessment of its controls or they risk impairing their objectivity.

In auditing public companies, Auditors have characteristically performed a mix of tests of controls and substantive procedures to reduce the risk of material misstatement of financial statements to an appropriately low level. However the SAS ED says the level of understanding of internal controls Auditors must have to express an opinion on financial statements is not adequate to offer an opinion on the controls themselves. The nature, timing and extent of the tests of controls the Auditor performs would ordinarily not be enough to express an opinion on internal controls because

The range of tested controls is not sufficiently broad.

Tests of controls may not provide appropriate levels of assurance about operating effectiveness.

Auditors will find these points have a significant impact on the integrated audit process.

Some of the changes which is pertinent to Auditors appointment ,roles responsibilities and reporting equirements are mentioned below:

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.