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Auditors conduct their work with the goal of providing reasonable, as opposed to absolute, assurance to the readers of their reports on internal...

Auditors conduct their work with the goal of providing reasonable, as opposed to absolute, assurance to the readers of their reports on internal control over financial reporting. Auditors have been responsible for issuing audit reports on financial statements based on the concept of reasonable assurance for some time; however, difficulties in applying the concept to audits of internal control over financial reporting became evident during the first year of implementation of Section 404 of SOX.

As a consequence , the PCAOB [http://pcaobus.org/Rules/Rulemaking/Docket008/2005-05-16_Release_2005-009.pdf] and SEC [http://www.sec.gov/news/press/2005-74.htm] issued statements regarding the concept of reasonable assurance.




Read the statements issued by the PCAOB and SEC on May 16, 2005 and briefly describe the apparent underlying cause(s) for auditors’ failure in applying the concept of reasonable assurance. Pay special attention to the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”

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