PCAOB Auditing Standard No' 2 Audit of Internal Control Over Financial Reporting The information and

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PwC
PCAOB Auditing Standard No. 2 - Audit of
Internal Control Over Financial Reporting The
information and considerations presented herein
do not constitute legal or any other type of
professional advice. Companies are encouraged to
consult with legal counsel concerning their
responsibilities under and compliance with the
Sarbanes-Oxley Act of 2002 and related Securities
and Exchange (SEC) rules and regulations.
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Sarbanes-Oxley Act of 2002

• The Act was signed into law on July 30, 2002 and
  includes eleven titled sections
• Title I Public Company Accounting Oversight
  Board
• Title II Auditor Independence
• Title III Corporate Responsibility
• Title IV Enhanced Financial Disclosures
• Title V Analyst Conflicts of Interest
• Title VI Commission Resources and Authority
• Title VII Studies and Reports
• Title VIII Corporate and Criminal Fraud
  Accountability
• Title IX White Collar Crime Penalty
  Enhancements
• Title X Corporate Tax Returns
• Title XI Corporate Fraud and Accountability

Note Some of the Acts provisions contemplate
the issuance of corresponding SEC regulations or
interpretive releases.
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Sarbanes-Oxley Act of 2002 302, 906, 404

• Section 302 - Requires quarterly certification
  by the CEO / CFO of all companies filing periodic
  reports under section 13 (a) or 15 (d) of the
  Securities Exchange Act of 1934 regarding the
  completeness and accuracy of such reports as well
  as the nature and effectiveness of internal
  controls supporting the quality of information
  included in such reports.
• Section 906 CEO/CFO Must Certify that Periodic
  Financial Reports fully comply with 34 Act and
  information fairly presents financial condition
  and results of operations
• Section 404 - Requires an annual report by
  management regarding internal controls and
  procedures for financial reporting, and an
  attestation as to the accuracy of that report by
  the companys auditors.

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Sarbanes-Oxley Act of 2002 PCAOB

• The Public Company Accounting Oversight Board is
  a private-sector, non-profit corporation, created
  by the Sarbanes-Oxley Act of 2002, to oversee the
  auditors of public companies in order to protect
  the interests of investors and further the public
  interest in the preparation of informative, fair,
  and independent audit reports. (PCAOB 2003
  Annual Report)

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Public Company Accounting Oversight Board
(PCAOB) Standard to address Section 404

• PCAOB issued a proposed standard on October 7,
  2003 to address how auditors should perform an
  audit of internal controls with regards to
  Section 404.
• PCAOB issued a revised standard on March 9, 2004.
• The SEC approved the standard on June 18, 2004.
  As a result, the standard becomes the PCAOB Audit
  Standard Number 2 (AS2).
• Effective date for Accelerated filers (a seasoned
  US company with float exceeding 75 million)
  under Exchange ActRule 12b-2 required
  compliance for fiscal yearsending on or after
  November 15, 2004.

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Audit Standard No 2 (AS2)

• Financial reporting controls include the controls
  over initiating, authorizing, recording,
  processing, and reporting significant accounts
  and disclosures.
• Reinforces the concept that an audit of the
  financial statements and an audit on internal
  control over financial reporting is now
  integrated and inseparable.
• Recognizes that internal control is not a
  one-size-fits-all concept and that companies
  will implement controls in different ways based
  on their size and complexity.
• Outlines managements
• Responsibilities.
• Documentation requirements.
• Outlines the auditors responsibilities and
  required communications.
• Establishes criteria for evaluating deficiencies.

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Significant Deficiency and Material Weakness

• Significant Deficiency
• A control deficiency that adversely affects the
  companys ability to initiate, authorize, record,
  process, or report external financial data
  reliably in accordance with GAAP.
• Could be a single deficiency or a combination of
  deficienciesthat results in more than a remote
  likelihood that a misstatementof the annual or
  interim financial statements that is more than
  inconsequential will not be prevented or
  detected.
• Material Weakness
• A significant deficiency, or a combination of
  significant deficiencies, that results in more
  than a remote likelihood that a material
  misstatement of the annual or interim financial
  statements will not be prevented or detected.
• Material Weakness Adverse Opinion

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The results from the 12/31/2004 filers