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Control Deficiencies
Charles B. Hall, CPA, CFE, Macc
[email protected]
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Overview
1. Red flags
2. Engagement letter
3. Encountering weaknesses
4. Filtering weaknesses
5. Capturing weaknesses
6. Communicating weaknesses
7. Effects on the audit
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Red Flags
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Obvious significant
weaknesses notcommunicated
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Documentationinconsistencies
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Material journal entriesand no deficiencies?
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Lack of control risk
assessmentdocumentation
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Engagement Letter
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Engagement Letter
1.No opinion on internal
controls2.Will communicate:
Significant deficiencies
Material weaknesses
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EncounteringWeaknesses
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Walkthroughs
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COSO
1.Control environment
2.Risk assessment3.Communication and
information
4.Monitoring
5.Controls
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Fraud interviews
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Journal entries
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Prior year comments
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Filter
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Control WeaknessesCategory Reportable? How?
Other
Deficiency
If merits
attention
Verbal or
in writingSignificant
DeficiencyRequired In Writing
MaterialWeakness
Required In Writing
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Significant Deficiency
A deficiency... that is less severe
than a material weakness, yetimportant enough to merit
attention by those charged with
governance
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Merit attention
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Material Weakness
A deficiency...such that there is areasonable possibility that
a
material misstatement of the
entity's financial statements...
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Reasonable possibility
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Capturing
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Capturing
Audit teams responsibility
to capture the weakness
Engagement partners
responsibility to assessclassification of weakness
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Communicating
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Communication
1.SAS 115 Letter or2.Management Letter
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Communication - Clarity Project
Change
Communicate an
explanation of the potential
effects of the significantdeficiencies or material
weaknesses
Effects do not need to be
quantified
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Communication - Example
Entity lacks segregation of duties
The company may suffer theft
losses because one person
receipts, records, deposits andreconciles cash activity
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Effects on Audit
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Effect on Audit
1.Effect on control risk
assessment
2.Effect on audit steps
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Summary Comments
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Summary Comments
Beauty is in the eyeof the beholder
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Summary Comments
The leg bone isconnected to the hip
bone
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Summary Comments
It does not matteruntil it matters
