Financial statement audits assertions and public company oversight

Management responsibility for reporting

Management is responsible for the financial reporting process and financial statements, including establishing and maintaining the relevant controls.

Management assertions about ICFR

Management makes assertions regarding the effectiveness of internal control over financial reporting.

Auditor ICFR role

When applicable, the auditor evaluates and reports on the design and operating effectiveness of ICFR; applicability depends on issuer status and exemptions.

Sarbanes Oxley Act of 2002

Legislation responding to weaknesses and fraud in corporate financial reporting, including management certifications and creation of the PCAOB.

Management certifications in the slides

Management certifies that it has read the statements, is unaware of false or misleading statements or omitted disclosures, and believes the statements accurately present financial condition.

PCAOB purpose

The Public Company Accounting Oversight Board oversees public company audits to protect investors and the public interest through informative, accurate, independent audit reporting.

PCAOB responsibilities

Registration, standard setting, inspections, and enforcement.

PCAOB registration

Register firms that audit public companies and SEC registered brokers and dealers.

PCAOB standard setting

Establish auditing, attestation, ethics, independence, and quality control standards within its jurisdiction.

PCAOB inspections

Assess registered firms' compliance with laws, SEC rules, and PCAOB standards; reports identify audit deficiencies.

PCAOB enforcement

Investigate and discipline firms and individuals for violations.

PCAOB inspection frequency in the slides

Firms auditing more than 100 issuers are inspected annually; firms auditing 100 or fewer issuers are generally inspected every three years.

PCAOB jurisdiction in the course

Public company audits, SEC registered broker and dealer audits, and relevant registered audit firms and professionals.

Existence assertion

Recorded assets and liabilities actually exist.

Occurrence assertion

Recorded transactions and events actually happened and relate to the entity.

Completeness assertion

All balances, transactions, and disclosures that should be recorded are included.

Cutoff assertion

Transactions are recorded in the proper accounting period.

Accuracy assertion

Amounts, quantities, calculations, and other transaction data are recorded correctly.

Valuation and allocation assertion

Assets, liabilities, and recorded amounts reflect applicable accounting measurements and necessary valuation adjustments.

Rights and obligations assertion

The entity has rights to reported assets and is responsible for reported liabilities and obligations.

Classification assertion

Transactions and balances are recorded in the proper accounts.

Presentation and disclosure assertion

Accounts are appropriately presented and information is properly described, grouped, understandable, and disclosed as required.

Balance assertion existence question

Do the assets listed really exist?

Transaction assertion occurrence question

Did the recorded transactions really happen?

Balance assertion completeness question

Are all required accounts and balances included in the balance sheet?

Transaction completeness question

Were all relevant transactions recorded in the financial statements?

Valuation question

Are account balances measured correctly, including necessary allowances and allocation adjustments?

Rights and obligations question

Does the company have rights to assets, and have all legal responsibilities to pay liabilities been identified?

Presentation question

Are disclosures understandable and complete, and are transactions and balances appropriately classified?