After the SOX law was passed, the SEC and the Public Company Accounting Oversigh

Question

After the SOX law was passed, the SEC and the Public Company Accounting Oversight Board (PCAOB) created detailed guidance for internal control reporting in the form of Auditing Standard 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (2004). Specifically, the auditor’s report under AS2 ordinarily included two opinions: one on management’s assessment of internal control, and one on the effectiveness of internal control. What specific issues have resulted in companies material weaknesses?

Explanation / Answer

Issues which resulted in companys material weaknesses :

2.Lack of proper technical knowledge of the personnel: Documentation of controls require technical knowledge of the staff and experts conducting review. Lack of technical knowledge has lead to deficiencies in internal controls

3.Entitys culture and risk: Conttrols also vary form firm to firm based on risk base of the entity and the environment in which entity performs business. Hence internal controls need to match the size of the form and environment in which it functions

4.IT education and internal contol: Proper knowledge is required over IT systems present in the entity. Lack of proper knowledge over IT systems and its controls lead to deficiency in entity internal controls

5.Environment dynamism: It refers to change in an entity with change in regulations processes etc. The more the dynamism,the more controls are required.

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