The Public Company Accounting Oversight Board has published guidance to help auditors apply Auditing Standard No. 5 to audits of internal controls at smaller public companies.

"Staff Views - An Audit of Internal Control Over Financial Reporting That Is Integrated with an Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies" offers advice on how to scale the audit to the size and complexity of the company. Some of the advice centers around evaluating the effectiveness of the CFO's review process, including examples involving experienced CFOs who conduct reviews of payroll processing and bank reconciliations.

The guidance also notes that upper management needs to be watched carefully at smaller companies.

"The risk of management override of controls exists in all organizations, but the extensive involvement of senior management in day-to-day activities and fewer levels of management can provide additional opportunities for management to override controls in smaller, less complex companies," said the publication. "Company actions to mitigate the risk of management override are important to the consideration of the effectiveness of internal control over financial reporting."

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