The Influence of Auditor and Client Section 404
The Influence of Auditor and client section 404
About the paper
This paper investigates the remediation of Sarbanes – Oxley of the section 404. It looks at the control deficiencies under the levels of the severity. It does this before the financial statement of the date. The investigations take place outside the public view among the companies, which are clean under section 404 opinions. It actually examines the data remediated by firm before the time and models them with measures of company and auditor under section 404.
Objectives of the paper
The objectives of the paper are to do the auditing of the firms to look at the internal control deficiency remediated before time. It also does research on material weaknesses (MWs) that bring the failures. Another objective is to find the companies that ICD remediation is for whether small or big. It also looks into investigation of deficiencies in internal control over financial reporting (ICFR) of the audit, which implicate fraud, and failure in businesses. Its other objective is to try to improve corporate controls in requiring company management as well as the external audits to document and to test the ICFR. Other objective is to examine the impact of whether at the time of auditor’s assessment. It also investigates determinants of ICD remediation previous to the books accounts data.
Interesting issues examined
It is interesting to know that it is difficult to know whether a specific MW has been remediated because of the problem with the language in public fillings, which may describe control problems at the high levels without specific details of the nature of problem in this case. Another interesting thing is that company management and external auditors independently evaluate and test ICFR and present opinion of the ICFR effectiveness. If there is any MW, that is at least one, at the balance sheet date, the company has an incentive to correct their detected problems before their balance sheet date. It has been given that MW that disappears in the following year may be assumed to have been remediated and may appear to continue when information that is more detailed reveals new specific issue concerning control area. The function of section 404 opinions is to identify MWs, and there is no excuse that these problems get lost when details get more. It is interesting to know that most severe deficiencies are important in achieving section 404, the data that the public get is incomplete and the balance sheet date is not observable. Another interesting thing is that large companies with clean section 404 opinions also remediate MWs. Company personnel are likely to be less able than auditors to understand their consequences for financial reporting are. Another thing is that the time of discovery of ICDs and that of balance sheet date may be too short to make remediation feasible in accordance to period available for MW remediation. Remediation can be costly for the companies to incur those costs
- If the internal personnel are involved in the auditing of the company, why should the company is allowed to correct their mistake? Before even the mistake is out the personnel would have identified it before it comes out. Then is not possible to audit your own company
- If MW disappears in the following year, what is the work of section 404 opinion and why MW cannot get detection and how do they know it has disappears? If they know that MW is there, they would have not leave it disappear for the excuse that it comes from the following year. This actually means that something suspicious is going on.
There are a number of limitations from the study. First, the study only investigates post disclosure remediation MWs coming from ineffective control reports, but is lacking characteristics of ICDs that makes MWs more or less likely to be remediated before disclosure. There is no sign also of increment of remediation rates as companies and auditor now gains experience. The analysis of the sample data is also limited to smaller public companies only during the analysis of data of 2004 – 2005. This may not be in use of larger companies. There is less guidance during the period of sampling for the companies and auditors on performance of the required assessments and testing which leads to uncertainty and inefficiency of the process. In addition, sample selection has not been observed during the random selection engagement for the study due to confidentiality agreement. It is only about one – fourth of sample ICDs were remediated by year – end, which is a lower rate than the publicly disclosed MWs. Also during the requesting of all ICFR problems for sample clients, auditors may not have been aware of some problems the client noticed. Furthermore, there are several judgments that are not in the audit work papers such as effectiveness of IT integration and the quality of the internal audit function.
Interesting future research
The future research will be on the function of the IT in relation to section 404 opinion. This research will focus on how IT is in use of the analysis of data and remediation of MWs through the IT system. This research will be more of related to the current research but focus on another part of it. It will be on the development of the system to make work easy and to eliminate errors that human make. This research also will look into how fast the system is and efficient the system is as compared to the current one. The problems may emerge where some of the personnel may not know how to use the system ending up making mistakes. This research will give a wider scope of the integrity of the system as compared to the existing although the existing has problems, but human who is prone to mistakes will still monitor this system. The process of data collection will be people’s work but analysis of the collected data will be for the system to do and give the outcome, which will be then used for identification of the MWs.
- Will the research find the system efficient? To some extent, the research will find the system efficient since it is automated. Because of this, it will not be prone to mistakes. However, this system is still run by the people, so no person will sure, whether the results will be real or not.
- In case of the breakdown of the system, how will the company service? For any system failure, the company will have to deal with the situation because it cannot close down. Because of this, the company will have to have personnel, in case of any problem as such.