Audits facing internal controls ‘perfect storm’

31st March 2014

MGI World Audits facing internal controls ‘perfect storm’

Auditors face a “perfect storm” in the area of internal control over financial reporting, Public Company Accounting Oversight Board (PCAOB) member Jeanette Franzel has claimed.

Speaking in Florida, she noted that management and auditors will be navigating the updated Committee of Sponsoring Organizations of the Treadway Commission (COSO) "Internal Control — Integrated Framework" at the same time that external audit firms take measures to respond to PCAOB inspection findings associated with their audits of internal control.

“Unfortunately, over the decades, we've seen multiple cycles in which company management and internal and external auditors simply didn't get it right in the area of internal control, resulting in failures to effectively define, understand, implement, and assess internal control,” Ms Franzel explained.

A decade on from the Sarbanes-Oxley Act, she wants to take a fresh look at internal control over financial reporting to prevent and detect material misstatements, and protect investors. Tackling this “perfect storm”, Ms Franzel added, demands the attention of all participants in the financial reporting and auditing chain.

She said: “This fresh look necessarily will involve management, internal auditors, external auditors, audit committees, and the PCAOB working together constructively to fulfill our respective responsibilities in the system of assurance over financial reporting.”

The hope is to establish “constructive” discussions between public companies and audit firm as management considers potential changes to internal control based on the updated COSO Framework. Ms Franzel noted that PCAOB inspection results have offered insights into areas where external auditors need to strengthen audits.

Feedback has shown a lack effective communication between audit firms and public companies about issues in internal control over financial reporting (ICFR). For example, there have been cases of audit firms telling issuers that the PCAOB insists on detailed procedures such as the use of screen prints’ to document certain systems-related features. “I assure you that the board is not requiring procedures at that level of detail,” said Ms Franzel.

Read more on Industry news

MGI World Africa region map with Morocco, Egypt and South Africa countries highlighted

Positive economic steps amid understandable concerns: our member firms in Morocco and South Africa comment on recent developments in their respective countries

21st July 2021

The June edition of the International Accounting Bulletin (IAB) features contributions from our...

MGI World Ghana and Kenya flags with text under

Changes in legislation impact the accounting industry in Ghana and Kenya

8th June 2021

In the latest edition of the International Accounting Bulletin (IAB), member firms MGI O.A.K...

MGI World Map of australia with flag detail and text

Sydney-based CPAAI member firm, Accru Felsers, gives a quick round-up of the Australia Federal Budget 2021

24th May 2021

Five months later than originally planned, as a result of the COVID-19 pandemic, Australian...