New PCAOB standard aimed to increase efficiency in Internal Control audits.

The board adopted AS 5 to supersede AS 2. This will apply to all companies required to conduct internal control audits as required by the SEC.

Key reasons for the change:

1. The Board’s inspection of the internal control audits conducted as well as public roundtable discussions revealed that the audits took greater than necessary effort.
2. The Board also felt that adoption of AS 5 would make it easier for smaller companies to comply with the Act’s internal control requirements.

Key Features of the new Standard:

1. Emphasizes fraud-risk and fraud related controls in the process of risk assessment.
2. The effectiveness of the company’s entity level controls may reduce the amount of testing in the underlying process controls.
3. The new standard permits the auditors to restrict their own testing by letting them use the control testing of others.
4. The Audit committee should pre-approve any internal controls related non-audit services provided by the company’s auditor. In fact, Rule 3525 requires a registered public accounting firm that seeks to provide such service to provide details such as scope of the internal control related non-audit service, the potential effects of the proposed service on the firm’s independence and also document the discussions that are held with the audit committee.


This may reduce some of the economic and operational burden currently being experienced by many companies. This is true because increased auditor reliance on the work of others and stronger entity level controls may translate into a reduction in the auditor’s testing time and effort.

PCAOB Approves New Audit Standard for Internal Control over Financial Reporting.

On May 24th, the Public Company Accounting Oversight Board approved a new audit standard for Internal Control over Financial Reporting.

Details:As per the PCAOB, 'the auditing standard adopted by the Board today is principles-based. It is designed to increase the likelihood that material weaknesses in internal control will be found before they result in material misstatement of a company's financial statements, and, at the same time, eliminate procedures that are unnecessary.' The final standard also focuses on the procedures necessary to perform a high quality audit that is tailored to the company’s facts and circumstances. The Board worked closely with the Securities and Exchange Commission to coordinate Auditing Standard No. 5 .

Applicability: 'The final standard may be used by auditors immediately following SEC approval, and it, along with Rule 3525, and the conforming amendments, would be required for all audits of internal control for fiscal years ending on or after November 15, 2007.

Coming soon~ Auditopia's analysis on the new audit standard.

Sarbanes-Oxley ripples felt on the Indian sub-continent.

Good news for those with business ties in the Indian sub continent. Last week, the DNA (http://www.dnaindia.com/report.asp?NewsID=1088529)provided details on the Ernst and Young India CFO survey.

It appears that out of the 125 CFO’s who were interviewed, 43% wanted the country to follow a SOX like model for internal controls. In fact, 56% felt that the benefit from corporate governance requirement outweighs the compliance cost.

Note that of these 125 CFO’s, 78% represented listed companies.

There was also an overwhelming support (81%) for the existing regime of corporate governance certification by CFO/CEO, despite its perceived high level of risk. About 60% of the CFOs believed that regulatory compliance is not a burden.

There maybe growing opposition to the rigorous demands of Sarbanes-Oxley in the U.S but it is surely gaining positive momentum elsewhere. With a large number of financial and other operations being offshored to India, increased corporate governance in the sub continent is a welcome phenomenon.