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Auditing and Assurance (KKP1-6)

  1. 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. Hint: Read the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”

The overall objective of Auditing Standard No. 2 is for the auditor to obtain evidence that a company’s control system reasonably assures that its financial statements do not contain material misstatements. To accomplish this, the auditor must not only exercise judgment to determine how to apply the standard to audit clients in different industries and of different sizes, but also exercise judgment to focus their work on areas that pose higher risks of misstatement, due either to errors or fraud. Reliance on standardized checklists that lead to a focus on controls in low-risk areas obviously fails to meet this objective.

(http://www.pcaobus.org/Rules/Docket_008/2005-05-16_Release_2005-009.pdf)

2. Why do you think firms had such difficulty in applying the concept of reasonable assurance during the first year of implementation of section 404?

Both management and external auditors must bring reasoned judgment and a top-down, risk-based approach to the 404 compliance process. A one-size fits all, bottom-up, check-the-box approach that treats all controls equally is less likely to improve internal controls and financial reporting than reasoned, good faith exercise of professional judgment focused on reasonable, as opposed to absolute, assurance.

(http://www.sec.gov/news/press/2005-74.htm)

Februari 3, 2010 - Posted by | tugas Audit 2

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