Auditors responsibility in identifying internal control problems
Auditors have a responsibility to unearth any internal control problems that might be existing in any company’s accounting system. For public companies, the auditors should ensure that they completely understand each component of internal control over financial system. It is the responsibility of the auditor to identify any potential misstatements (Public Company Accounting oversight Board). The auditor should also assess those factors that may lead to material misstatements and finally design further audit procedures. The extents of procedures however depend with the size of the company.
After the auditing, the auditor has to communicate to the auditing committee and also the management in writing about any considerable weaknesses and deficiencies recognized during the auditing procedure. The communication should, however, be made before the issuance of an audit report. The report should be clear in distinguishing between significant deficiencies and weaknesses as defined by the Public Company Accounting Oversight Board.
For private companies, the audit report is communicated to the stakeholders. Stakeholders include all people with any interest in the company. They can also be an audit committee appointed by the stakeholders. The communication can be written or oral depending with the instructions of the stakeholders. The auditor should also assess those factors that may lead to material misstatements and finally design further audit procedures. The extents of procedures however depend with the size of the company.
I believe Foamex was at fault and the SEC was not making an example of them because the issues that led to the sanction had existed for long and different auditing firms had recommended that those issues be rectified. A good example is inventory reporting. In the 1999 audit, price Water Coopers (PWC) recommended that Foamex improves on inventory reporting. During the 2002 audit, Deloitte again recommended that the company should improve the inventory system as a whole. It was until the year 2004 that the company tried to remedy the internal control issues raised (Knapp 317).Some of these issues were identified as early as 1999 and the company should have rectified them then. I believe SEC undertook its mandate.
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