Streamlining auditor attestation.
Sarbanes-Oxley requires independent auditors to attest to management's assessment of controls over financial reporting. However, the U.S. Public Company Accounting Oversight Board (PCAOB), which oversees external auditors of public companies, far exceeds this mandate by requiring external auditors of large publicly listed companies to express an opinion on the effectiveness of internal control over financial reporting, not just on management's assessment. Interestingly, the PCAOB's Auditing Standard No. 5 adopting release notes, "Some commenters have expressed their belief that the act requires only that the auditor review management's assessment process and not the company's internal control."
In contrast to the PCAOB, Japan's equivalent to Sarbanes-Oxley requires the independent auditor to attest to management's assessment only. The requirement emphasizes management's accountability for its internal control system and provides a clear scope for the auditor's attestation. U.S. regulators could adopt a similar approach, whereby independent auditors would attest to a tangible set of documentation provided by management. Internal auditing's presence in all publicly listed firms, however, would be essential to the success of this process. Through its monitoring of Sarbanes-Oxley compliance, internal auditing would strengthen the company's overall control environment and provide a more sound basis for the independent auditors to render their attestation. Internal audit functions, therefore, would need to be mandatory in all publicly listed firms and required to provide an independent assessment of the underlying documentation from management's assessment of financial controls.
Streamlining attestation would better align the independent auditor's role with the Sarbanes-Oxley Act, and it would benefit both public companies and their investors. Moreover, it would give internal auditors increased recognition by the investing public for their value-added contributions to the organization.
To comment on this essay, e-mail the author at firstname.lastname@example.org. The opinions expressed are solely those of the author.
Ilan Haimoff, CPA, CIA, CFE
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|Title Annotation:||IN MY OPINION|
|Date:||Jun 1, 2008|
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