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We discuss and hello and welcome to the session and which we would look at at the internal control. And that the pca will be auditing standard in the prior. We looked only at the audit opinion under the pcaob standard.
So we looked at the audit. Opinion and we look at the audit opinion. We compared not the others opinion.
The audit report under the pcaob and we compare and contrast. This report to the aicpa audit report and when we said. We said there are two differences.
One is the opinion is called unqualified opinion rather than unmodified and the report format is different. And the other major difference is the auditors of large public companies must also report on the internal control over financial reporting. Now if you remember at the beginning of this class we said that sarbanes oxley act sox required that auditors of public company to report on the effective effectiveness of the internal control of large public companies.
So you are required you are required with your a public company to have your internal control. It have your internal control basically in a sense. Audited and the end the auditor to issue an opinion basically.
Its an attestation function about your internal control. Sorry. The pcaob auditing standard.
5 requires the audit of the internal control to be integrated with the audit of the financial statements as you are auditing the financial statements. Youll also be other things. Its its integrated work youre also reporting.
The reporting on the internal controls. However the audism issue is separate report or if you remember what i talked about earlier. I said you can have a fourth paragraph here in the prior session.
And said you can have a fourth paragraph discussing the internal control to report on the internal control. Or you could have a separate report. Which were going to have in this recording.
Im going to look at the separate report of the internal control this way to give you a full picture of the separate report. So this is what the separate report would look like so it has an introductory paragraph scope definition inherent limitation opinion and a cross cross reference paragraph. So basically were going to go ahead and look at the report if they just kind of get an idea what goes with again on the cpa exam.
Those are the things that they may ask you about the first thing is actually i skip the title. The title has to include the word independent duh okay because if you are if you are conducting the audit. Youre going to be independent.
Obviously if you are auditing the internal controls are going to have to be independent. But you still have to mention the word independent then youre going to have whats called introductory paragraph introductory paragraph so lets look at the end of introductory paragraph and to see what are we saying here notice. We have audited again.
We have audited now we have wanted the internal control over financial reporting. Not in all the internal control specifically over financial reporting and we have to mention. Which criteria that we use we use co.
So co. So is the criteria and co. So is the committee of sponsoring organization.
You have to say. Which criteria did you use what did you what standard that you use okay so on the introductory paragraph you have to do that and you have to mention that management is responsible for maintaining effective internal control over financial reporting. We are not maintaining the internal control.
They are maintaining the internal control. So whats our responsibility. Our responsibility is to express an opinion on the companys internal control basically its third its the management.

who is responsible for establishing a private companys internal control?-0
who is responsible for establishing a private companys internal control?-0

Internal control were expressing an opinion. So right and the right from the get go you say what is your responsibility. And whats the management responsibility.
Now there is the scope. Paragraph then so were done with the introductory. Theres the scopetta graph now what you would say we conduct our audits in accordance with the standard of pcaob those standard required that we plant and perform the audit to obtain once again notice here just like for financial statements for the internal control were only providing reasonable assurance.
Whether the internal control over financial reporting was was maintained and or material your respect. So are they maintaining durkins internal control as they are claiming our other thing will be obtaining an understanding of the internal control so we we we studied the internal control over financial reporting assessing the risk that a material a material weakness exists testing and evaluating the design and operating effective so were looking at the design and the operating effectiveness of the internal control and based on the assessed stress. We perform such procedure.
Okay. We believe that our audit provides a reasonable basis for our opinion. Once again.
Its very similar to the financial statement audit. We are assessing the risk and based. Were collecting evidence based on that risk then we are providing an opinion.
Reasonable opinion for our reasonable reasonable basis for our opinion. Then what you do and what you do you have a separate paragraph defining internal control the definition of internal control. So what is internal control.
A companys internal control over financial reporting is the process designed to provide reasonable assurance regarding the reliability of the financial statements and the preparation of the financial statements for external purposes in a coordinating word gap. So basically you are saying. What is an internal control.
The companys internal control over financial reporting include those policies and procedures that pertain to the maintenance of record that is reasonable thats reasonable detail accurately and fairly reflect the transaction and disposition of assets of the company provide reasonable assurance that transaction are recorded necessary to permit preparation of financial statement. And according good gap and at the preparation of the financial statements and according with gap and that receipts an expenditure of the companies are being are being made only in according to the author according with the authorization of management and directors of the company provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the companys asset that could have a material effects on the financial statements and i going to explain this because were going to look at internal control. Way way more and details later on and in a nutshell internal control our policies and procedures.
Thats going to make sure the company is reporting their assets their liabilities. The revenues to expect expenditure appropriately in a correct fashion. Okay then after we define the internal control.
We have to list the inherent limitation of the internal control basically was saying the internal control is not perfect. Although they might have a good internal control. But its not perfect the internal control has inherent limitation because of the inherent limit and well talk about the inherent limitation later on the thermal control over financial reporting may not prevent or detect statement.
So. Although. Its there its working expected if so may not prevent or detect.
Because people can be again misinterpret. The instructions they could they could make a mistake. Many reasons.
Why internal control is not perfect also projection of an evaluation of the effectiveness or future period are subject to the risk. That control may become inadequate. Because of changes in conditions.
So what were saying also it may be good now. But it may not be good in the future. And thats true or that the degree of compliance with policies and procedures may deteriorate.
So now what were saying is maybe now the company. The employees are following internal control. Theyre doing exactly as theyre supposed to but in the future.
We cannot guarantee that so just just know that there are inherent limitation for the internal control world telling. The users keep that in mind then we have an opinion. Now you state your opinion in our opinion.

who is responsible for establishing a private companys internal control?-1
who is responsible for establishing a private companys internal control?-1

This company maintained in all respect effective internal control over financial reporting based on coso criteria. Effective. It thats good thats a good opinion.
Thats good it work its good opinion. It doesnt mean although were saying is we think. Its effective.
Its a professional judgment that we think the internal control is doing what its supposed to do we did not find basically a deficiency in it okay. But were still saying. Its only a professional judgment and we could connecter make a mistake of course of course they can also the last paragraph is a cross reference paragraph.
We have also audited in accordance with the state with the standard of the pcaob. The consolidated financial statements. Obviously this is a cross reference and we express an unqualified opinion on the financial statement.
So what theyre saying here also that we also audited the financial statements of course. You audit. The financial statements as part of auditing.
The financial statements. You order the internal report. So this whole report.
And it can also be summarized into a paragraph here the fourth paragraph about internal control. But here were looking at it and basically include the main topics that we talked about so it can be a fourth paragraph. So both report can be integrated into one.
Both paragraphs can be integrated into one now keep in mind. This is an unqualified opinion of a financial report. Because it says maintain effective internal control enormity of your respect.
Now can we have other than this opinion of course. The internal controls can also be deficient and we could have a different opinion and well talk about the opinion on internal controls in a separate session. I just want to make sure youre aware of this also we could have a report on internal control for private companies again.
Well discuss this in a separate sessions also private companies they could engage a cpa firm. Asking them to issue. A report on the internal control.
Because the owners of the company wants to know how well is the internal controls for their company for a private company. Okay so keep that in mind. So.
This is the internal controls. And this is one of the main difference so for the private company. This is not mandatory for public companies.
This is mandatory okay so the next topic were going to look at in this and this course is described the five circumstances when in emphasis of a matter explanatory paragraph or non standard. The right wording is appropriate to include in an unmodified opinion. So now were going to take the unmodified opinion.
And were going to describe five different circumstances. Well we have to emphasize certain things or modify. The wording and the report because we talked about the unmodified opinion.
When everything is good everything is perfect not everything is good we issued an unmodified opinion. Again unmodified is for private companies unqualified for public again we always use unmodified unless. We are specifically dealing with a public company then were going to start to look at the different opinions.
If you have any questions. Any comments by all means email. Me again study hard and treat your homework read your textbook.
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who is responsible for establishing a private companys internal control?-2
who is responsible for establishing a private companys internal control?-2

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