While generally supportive of the proposal, CCR argues that "the standard, as currently drafted, creates a situation where the costs far outweigh the benefits of implementation. Given the limited level of reliance that the external auditor can place on the work of others, the resultant level of duplicative testing will cause numerous interruptions to the operations of our businesses.
"These interruptions alone are very costly; however, when coupled with the cost of internal and external resources to support management's assertion and the fees associated with the increased work to be performed by the external auditor, the costs are far beyond the benefits attained," the letter adds. "Most CCR companies will see an increase of 30 percent to 50 percent in audit fees as a direct result of the required audit of internal control over financial reporting."
The committee also contends that "that the standard does not allow the auditor to exercise sufficient judgment. The proposed standard is very prescriptive, causing auditors to perform the same level of testing at companies with strong control structures as would be performed at those with weak control structures."
In situations where the control environment is very strong, CCR argues, "the level of detail testing of the controls over routine data processing should be minimal." And, as the rule relates to rotating tests of controls, the committee believes the rule "does not allow the auditor to exercise judgment regarding the level of testing from year to year on processes that remain unchanged."
In general, CCR writes, "we believe that the standard places very little value on the work of a company's management and its internal auditors. In doing so, the standard requires that the external auditors re-perform a significant level of testing for which the results of identical testing are easily obtainable from management.... A properly functioning internal audit function is competent, objective and independent from management. As such, the standard needs to allow for a significant amount of reliance on the work performed by internal auditors, especially in areas beyond routine transaction processing."
The committee also argues that "the requirement for the auditor to evaluate the effectiveness of an audit committee creates conflict of interest. Considering that the audit committee makes the decisions regarding hiring and firing of the external auditors, such an evaluation would put the auditor in an awkward position. This position could cause the auditor to be unwilling to conclude that the committee is ineffective. Further, and perhaps more importantly, we believe that a properly functioning audit committee is comprised of individuals with a much broader expertise than that held by the professional auditor. Accordingly, we do not believe that most external auditors carry the level of expertise necessary to effectively evaluate an audit committee."
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|Title Annotation:||fei News|
|Date:||Dec 1, 2003|
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