Auditing Srandards No. 2 and 5

Standards

Auditing Standard No. 2 - An Audit of Internal Control Over Financial Reporting Performed in Conjunction With An Audit of Financial Statements

Auditing Standard No. 5 - An Audit of Internal Control Over Financial Reporting That is Integrated With an Audit of Financial Statements and related Independence Rule and Conforming Amendments PCAOB Rulemaking Docket

Part 1

Standard 5 has adopted the same definitions for significant deficiencies and material weakness that the Securities Exchange Commission (SEC) uses. Significant deficiency is defined as “a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.” Material weakness if defined as “a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.” (SEC)

The direction on using the work of others in an audit of internal control from Standard 2 has been replaced in Standard 5. The auditor may use competent and objective work of others in an integrated audit to obtain evidence supporting the auditor’s assessment of control risk for purpose of the audit of financial statements. Although the use of the work of other’s will more limited as risk increases. (RIAG)

When a company has multiple locations or business units, the auditor should identify significant accounts and disclosures and their relevant assertions based on the consolidated financial statements. (RIAG)

There are three types of auditor opinion reports. Every client hopes for an unqualified opinion, also called the “clean opinion”. An unqualified opinion is issued when the financial statements presented are free of material misstatements and in accordance with Generally Accepted Accounting Principles (GAAP). An unqualified opinion