The Public Company Accounting Oversight Board's top auditor offered some suggestions for the third year of life under the Sarbanes-Oxley Act, while speaking at the 25th Annual Securities and Exchange Commission and Financial Reporting Institute Conference on June 8.
Thomas Ray, the board's chief auditor and director of professional standards, pointed to the board's May release of a plan to improve implementation of SOX's internal control reporting requirements by focusing on efficiency during inspections.
Ray said that he believes major opportunities for increased efficiency exist in two areas -- the auditor's evaluation of management's assessment process, and how the auditor's risk assessment is applied to the nature, timing and extent of the tests of controls. He suggested that the auditor's documentation of their evaluation of management processes don't need to be extensive, but just show that the auditor is satisfied that management has an appropriate basis for its conclusion.
"I believe it also is helpful to point out that the auditor's evaluation of management's process is most efficient when management has done a good job documenting both the design of the company's internal control and the assessment process and results," Ray also added.
Ray said that the PCAOB has received much feedback that auditors are focusing too much audit attention on low-risk, transaction-level internal controls. He said that there are plenty of opportunities for auditors to reduce the testing in low-risk areas, especially now that auditors have two years of internal control experience and should have knowledge of what controls are most important to their clients' businesses."Provided that the auditor is satisfied that there have been no changes to controls tested in the previous audit ... the auditor might limit his or her testing in some low-risk areas to just the walkthrough itself," Ray said, providing an example. "One of the most important elements in making those determinations is the auditor's professional judgment."
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