Auditor must:

• Evaluate management’s process for:
• Determining controls and locations to be tested
• Evaluating the design effectiveness
• Evaluating operating effectiveness
• Obtain an understanding of internal controls
• Inquiries of personnel who perform controls
• Observe performance of controls
• Review documents to support application of controls
• Compare supporting documents to the accounting records
• Determine effectiveness of the audit committee
• Independence
• Clarity of responsibilities
• Level of involvement and interaction with internal and external auditors
• Time devoted to control issues and committee activities
• Ineffective audit committees should be treated as significant deficiencies

Auditor also must:
– Express an opinion on whether management’s written assertion about the effectiveness of internal control over financial reporting is fairly stated in all material respects
– Consider management’s assessment and directly evaluate the effectiveness of internal control over financial reporting
– Plan the audit to obtain reasonable assurance of detecting material weaknesses
• Existence of a material weakness precludes an unqualified opinion
Internal Control Report/Audit Opinion

• Deficiencies and the opinion:
– Following are at least significant deficiencies:-
• Controls over selection and application of accounting policies
• Antifraud programs and controls
• Controls over non-routine and nonsystematic transactions
• Controls over the period-end financial reporting process

– Following are strong indicators of a material weakness:
• Restatements
• Auditor identified material misstatements
• Ineffective audit committee
• Uncorrected deficiencies previously communicated to management