407OH - If failure, draw another sample to verify All...

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Today’s Topic Evaluating control Deficiencies Effectiveness Remediation
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PCAOB Standard: Severity of Deficiency 1. Failure to prevent/detect misstatement is reasonably possible 1. Magnitude of the potential misstatement Only responsible for material weakness
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Reasonably Possible Factors Nature of accounts, disclosures, assertions Susceptibility of related asset to fraud Nature of judgment involved in amount Relationship with other controls Combination of deficiencies Consider compensating controls (see Wachovia) Possible future consequences of deficiencies
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Magnitude Factors Amounts exposed to deficiency Volume or class of transactions involved Overstatement is recorded amounts Understatement could be more
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Indicators of Material Weakness Identification of fraud by senior management Prior restatements Material misstatement in F/S that would not be prevented/detected by I/C Ineffective oversight by Audit Committee
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Wachovia Guidance Less than 10% failure = no deficiency
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Unformatted text preview: If failure, draw another sample to verify All exceptions must be addressed/ examined/explained by management CPA Firms: Evaluating Exceptions Test objective was met Test objective was not met No Yes Test objective was met Test objective was not met Examine test exceptions: Quantitatively Qualitatively Would additional testing help? Control Deficiency Not a Control Deficiency Extend test and re-evaluate CPA Firms: Type of Deficiency No No Yes Yes No No No No No Yes Yes Yes Yes Yes Is magnitude inconsequential? Are there compensating, complementary, or redundant controls to test? Is magnitude less than material? Do compensating controls reduce magnitude to less than material? Is likelihood of material misstatement remote? Material Weakness Would a prudent official deem deficiency at least significant? Would a prudent official deem deficiency is a material weakness? Deficiency Significant Deficiency...
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407OH - If failure, draw another sample to verify All...

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