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Auditing standard 5 - Internal Controls for Integrated Audit

Auditing standard 5 - Internal controls for integrated audit

What would you do if you were the CFO of the XYZ company that is listed on the stock exchange and find through the yearend audit by an independent Audit firm that a 3,000 dollar entry went to the wrong account? In this case the CFO decided not to reopen the books to make this correction. Was this decision by the CFO correct or not?

Who is Edgar and what does Edgar have to do with 8K, 10K and 10Q?
How can Edgar help you in getting information?

The new Auditing Standard # 5
Why should accountants want to know what is contained in this standard?

Accountants need to know the provisions of this auditing standard so they can be an active participant when working with the independent auditors. In addition the auditing standard provided important information that will guide the accountant (CFO) in developing and installing the company's internal controls.
In accounting we all know that no matter how hard you try there will be errors. When they are discovered during the year they occurred, the accounting entries are made to correct the error.
How would it work if the error was discovered during the yearend audit or after the books were closed?
Now do you drill out the concrete to get the penny which will cost much more than the penny is worth or do you just do nothing?

Solution Preview

What would you do if you were the CFO of the XYZ company that is listed on the stock exchange and find through the yearend audit by an independent Audit firm that a 3,000 dollar entry went to the wrong account? In this case the CFO decided not to reopen the books to make this correction. Was this decision by the CFO correct or not?

A: The $3,000 may not have been material to the financial statements (not big enough to make a difference to a decision) and so it may have been correct to not worry about reclassifying the entry. However, the CFO should investigate the controls that permitted such an error to occur and not be detected. It is a breach of the internal controls over financial reporting.

Who is Edgar and what does Edgar have to do with 8K, 10K and 10Q?
How can Edgar help you in getting information?

A: EDGAR is not a person EDGAR is an ...

Solution Summary

Your tutorial is 438 words plus a reference. Your discussion talks about internal controls, materiality, cost/benefit and audit adjustments and how they are handled. The rule for handling errors found during audits is mentioned.

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