Auditing Internal Control:The New PCAOB Standard - The ...

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Auditing Internal Control: The New PCAOB Standard The Conceptual Issues

?CCH Tax and Accounting

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Welcome

Welcome to Auditing Internal Control: The New PCAOB Standard - The Conceptual Issues course.

This CPE course, developed by noted tax authority Gary L. Maydew, provides an overview of this important

new standard for auditors of publicly-held corporations.

The course covers Auditing Standard No. 2 issued by the Public Company Accounting Oversight Board

(PCAOB) on May 14, 2004, effective generally for audit reports issued or reissued on or after May 24, 2004.

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Course Structure

How the Course is Organized

This course is designed to provide you with an engaging learning experience. It consists of self-paced

reading materials, study questions, observations, examples, and illustrations.

Auditing Internal Control: The New PCAOB Standard - The Conceptual Issues is divided into the

following chapters:

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Importance and Applicability of the Standard

The Auditor's Objective in Auditing a Company's Internal Control System

Definitions Applicable to Internal Control Over Financial Reporting

Framework Used by Management in Conducting its Assessment of Internal Control

Inherent Limitations in Internal Control

Management's Responsibilities

Why Do I Need to Complete Learning Activities?

Integrated throughout the course are study questions that give you the opportunity to test your

understanding of the material presented and to prepare you for the Final Exam. Answering the questions

encourages interactivity and reinforces the course objectives.

What Do I Find in the Glossary?

A glossary section provides definitions of the terms used in the text. It is universal for all CCH Learning

Center online courses. Terms are listed in alphabetical order.

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Access the CCH Tax Research NetWork, print the pages, read the hard copy, and take notes.

Keep the CCH Tax Research NetWork open during the course and toggle back to it when

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Accounting Research Manager

Most modules in this course include links to Accounting Research Manager, providing access to

authoritative and proposed literature from the FASB, AICPA, SEC, EITF, and IASB. Direct links to the

sections are provided. You will to use your personal Accounting Research Manager User ID and

Password.

There are different ways you can use the Accounting Research Manager in this course:

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Read online when directed

Access the Accounting Research Manager, print the pages, read the hard copy, and take notes.

Keep the Accounting Research Manager open during the course and toggle back to it when

necessary

NOTE: You need to login to the Accounting Research Manager only once. Each time you click on a link, a

new Internet Explorer window will open. You can have several documents open at once, each in its own

window.

Course Objectives

This course was prepared to enable participants to attain a basic level of knowledge in the area of Auditing

Internal Control and PCAOB Auditing Standard No. 2.

More specifically, upon course completion, you will be able to:

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Have a basic understanding of the requirements applicable to auditing

the report of management on the internal control system over financial

reporting.

Perform the attestation function on such a report.

Answer client questions regarding auditing the report of management

on the internal control system over financial reporting, with accuracy

and confidence.

Complete the continuing professional education quizzer with a grade of

70 percent or greater to earn CPE credit.

Tools and Resources

In addition to insights from examples and observations throughout this course, Tools and Resources are

provided to:

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Keep you abreast of developments in auditing the report of management on the internal control

system over financial reporting.

Help you apply the knowledge gained from this course in your practice.

Help you generate fees in this growing area of accounting.

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Download:

SEC Financial Statement Disclosures Checklist

This SEC Financial Statement Disclosures Checklist is for financial statements included in

SEC 1934 and 1933 Act domestic filings, such as the financial statements in a Form 10-K,

10-Q, or S-1.

SEC Delays Compliance Date for Internal Control over Financial Reporting for

Nonaccelerated and Foreign Filers

This update gives notification to certain filers about required reporting by management on

internal controls over financial reporting.

Introduction

This subject is divided into two courses. This course covers the conceptual issues that the PCAOB

considered in developing Auditing Standard No. 2 (hereafter referred to as AS2). The second course

covers the operational aspect of AS2, i.e., performing the audit of internal control.

With the passage of the Sarbanes-Oxley Act of 2002, ultimate authority for issuing auditing standards of

publicly-held companies was transferred from the American Institute of Certified Public Accountants (AICPA)

to the PCAOB.

The highly publicized cases of financial reporting fraud in such companies as Enron and WorldCom led

Congress to believe that self-regulation by the accounting profession was ineffective and that an

independent organization (the PCAOB) needed to be established to promulgate standards for auditing

publicly-held companies. AICPA auditing standards are still being used as PCAOB develops its own

standards.

AS2 does not apply to the audit of the financial statements of the company. Instead, it provides standards

for providing an audit on management¡¯s assertions regarding internal control of the company.

However, AS2 covers aspects of internal control that may be similar to standards and procedures applicable

to the study, review, and audit of internal control that is conducted in an audit of the financial statements.

The PCAOB has, as of this writing, issued several rulings and three auditing standards. As mentioned, this

course covers AS2. The pronouncement is entitled "An Audit of Internal Control Over Financial Reporting

Conducted in Conjunction With an Audit of Financial Statements," and was issued on June 17, 2004

[Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Conducted in Conjunction

With an Audit of Financial Statements, Public Company Accounting Oversight Board, June 17, 2004 (for the

effective date, see the section of this course entitled "When Effective.")]

Importance and Applicability of the Standard

Companies subject to the Securities Exchange Act of 1934 (an issuer) must include as part of their annual

report a separate report by management that contains its assessment as to the effectiveness of the

company¡¯s internal control system over financial reporting. The report must include a statement as to

whether the company¡¯s internal control over the financial reporting system is effective. The company¡¯s

independent auditor must audit, in addition to the financial statements, management¡¯s assertions as to the

effectiveness of internal control.

Further, the independent auditor¡¯s attestation report on management¡¯s assertions must be included in the

company¡¯s annual report. [Ibid, ? 2] Therefore, AS2 is of critical importance to all who audit publicly-held

companies. (The terms "publicly-held companies," and "issuer" are not intended to be a precise definition of

those companies subject to AS2. Readers are referred to Section 404 of the Sarbanes-Oxley Act of 2002

(P.L. 107-24) as well as the Securities Act of 1933 and Sections 3 and 12 of the Securities Exchange Act

of 1934).

However, the PCAOB does not have jurisdiction over audits of non-public companies and its auditing

standards including this standard, do not apply to such companies. The pronouncements of the Auditing

Standards Board (ASB) of AICPA (issued as Statements on Auditing Standards) continue to apply to audits

of non-public companies or to other entities such as not-for-profit organizations or governmental entities.

AS2, though quite detailed and precise in its promulgations of definitions, does not break much new ground.

Most of the material in the standard is derivative (e.g., sourced material includes the Committee of

Sponsoring Organizations ( COSO) report, as well as many auditing standards issued by AICPA). The

standard relies on several statements of the Financial Accounting Standards Board (FAS statements)

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