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effectiveness of an entity’s internal control. Consider the following example:
EarthWear Clothiers is a successful mail-order retailer of high-quality clothing for outdoor sports.
Over the last few years the company has expanded sales through its Internet site. EarthWear’s common stock is listed and traded on NASDAQ. Securities laws require company ofﬁcials to certify that they
have properly designed, implemented, and tested internal control over their accounting and reporting information systems. EarthWear’s public accounting ﬁrm, Willis & Adams, examines on a yearly basis the design
and documentation of EarthWear’s internal control and conducts independent tests to verify that EarthWear’s system is operating effectively. Willis & Adams issues a report to the public expressing its opinion on
management’s assertion that EarthWear’s internal control is well designed and operating effectively. Thus,
stockholders, creditors, and other stakeholders can have greater conﬁdence in the ﬁnancial reports issued
by EarthWear’s management. Most readers of an introductory...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.