Expert: Consuelo Herrera, International Accountant and Fraud Examiner - 9/11/2006

Question
in this below return ,you have discribes the external auditor ,but you didn't explain much about internal controls.so please ,explain the internal controls in respect to external auditor.
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Followup To

Question -
what are the internal controls and external auditors?

Answer -
Dear Manvinder Singh,


External auditors and the internal control function should be very well integrated in order for the issuers to draw benefits from the services they perform. Each year, at the minimal, the external auditor should issue a report concerning the compliance with the QC (Quality Control) Section 20 of the AICPA Professional Standards Volume 2 “Monitoring the CPA’s Firm’s Accounting Practice and Audit Practice.” Those standards, issued by the Auditing Standard Board, ASB, are coupled with the duties of the PCAOB that include among others things, establishing auditing quality control, ethics, independence, and other standards relating to audits of issuers.

The Section QC 20 provides the elements that a CPA firm should follow to ensure that services are competently delivered and adequately supervised. Those five elements are:
1.   Independence, Integrity, and Objectivity
2.   Personnel management
3.   Acceptance and continuance of clients and engagements
4.   Engagement performance
5.   Monitoring.
Each company that is being audited should have a detailed report from the external auditors concerning the compliance of those elements assessed individually and the dealings with issues or findings as a result of the quality control review. By the same token, it is important for the issuer to know if the external auditor is facing legal or governmental investigations related to prior audits and any matter that could undermine the quality of the services rendered.

The opinion of the external auditor concerning the company’s internal procedures is fundamental. It should cover the scope and duties of the internal audit function. As part of the ongoing improving process of each company this assessment of the internal controls that are in place and their application is an important contribution of the external auditor in reaching that goal.

In addition, as part of the internal controls over the external audit services, the issuer should exercise diligence in making sure that the personnel in charge of the engagement meet the qualifications to ensure that the audit will attain its objectives.

I hope it helps. Thank you for contacting me and I am looking forward to receive your feedback.


Cordially,


Consuelo Herrera
International Accountant and Fraud Examiner

Answer
Dear Manvinder Singh,

I hope you received my laste-mail where I directed you to the Inspections reports issued by the PCAOB.

In addition, I got some feedback concerning this same matter from my peers in a professional network suggesting some other procedures that could be followed:

Do you have an employee handbook.
Procedure for vendors on site.
Sensitive information policy
confidentiality policy
Email and internet policy
Critical areas policy
Hours of work

Another opinion stated:
You can of course add some control points and for consulting work, you could provide some real oversight. Others have made good suggestions and I will add a few more.

Is there an assigned contact person to handle requests such as schedules and reports that are to be prepared by the client?

Are requests tracked to ensure that are routed to the correct people, provided timely and that all of the supporting documents are returned by the EA?

Are system access requests authorized with appropriate limitations on the number of users, user access level, systems allowed and/or data accessed?

Are those access approvals set up to terminate after a set number of times or a set time period?

Is there a timeline agreed on in advance by management and the EA regarding deliverables such as draft financial statements, proposed EA adjustments, final financial statements, EA opinion letter, management letter etc.?

You challenged me with your question!

I hope it helps and I am looking forward to receive your feedback.


Cordially,


Consuelo Herrera
International Accountant and Fraud Examiner