Question

Management's report on internal control on financial reporting issued by the management includes disclosures about corrective actions taken by the company after the date of management's assessment and the company's plan to implement new controls.

A. What type of report on ICFR would you issue? Tell why you made the choice you did. Remember, your choice is the only correct answer.

B. Would your answer change if it is a material weakness? Explain.

Answer 1

Internal Control on Financial Reporting (ICFR)

a) Management reports involves the review of managerial aspects like organizational objective, policies, procedures, structure, control and system in order to check the efficiency or performance of the management over the activities of the Company.Here specified management's report on internal control on financial reporting issued by the management includes disclosures about corrective actions taken by the company after the date of management's assessment and the company's plan to implement new controls.Management reporting can be expressed broadly as reports that management uses to run the organization, make business decisions, and monitor progress. Management reports help managers monitor the smaller details of their department.

Internal financial reporting traditionally means compiling and distributing generic reports that show a company's past, short-term financial performance. The financial reports at one company look the same as they would at any other company. Internal financial reporting does not have to be that way. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.For the ICFR audit:,the auditor determines what could go wrong to impair the validity of management’s assertions for the important accountants and disclosures.The auditor evaluates whether management has constructed controls that may be effective in preventing or detecting the identified problems. If controls are in place the auditor designs and executes procedures to test whether those controls that are targeted at the problems that could occur in the assertions for important accounts and disclosures actually operate effectively.

For the purpose of IFCR,the management maintain books, records, and accounts which, in reasonable detail, accurately and fairly reflect the company’s transactions; and devise and maintain internal controls sufficient to provide reasonable assurance , transactions are executed in accordance with management authorization,transactions are recorded as necessary to (a) permit preparation of financial statements in conformity with GAAP and (b) maintain accountability for assets,access to assets is permitted only in accordance with management authorization, and recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken regarding any differences.There are three main types of internal controls and reporting such as detective, preventative, and corrective.All organizations are subject to threats occurring that unfavorably impact the organization and affect asset loss.Unfortunately, processes and control activities are not perfect, and mistakes and problems will be found.Am choosing preventative Internal Control Financial Reporting types,after admitting errors and mistakes in the financial reporting it may loss more time and money in due course.If made any mistke,fraud and misrepresentation in the reporting work it may bring lot of problems in the internal control system of the company and need efficient and effective workforce(auditors) for detecting and rectifying the errors and mistakes.The corrective measurement may taken this force but need time,money and other resources for fulfilling the operation.So I choose preventative types of reporting methods.the main reason is that 'prevention better than cure' avoid all the problems from the root course.after effect of this reporting we cannot spend more time,money and work force for the rectification purposes.

b) A material weakness in ICFR exists if there is some flaw within the company’s overall control system such that it is at least reasonably possible that a material misstatement in the company’s financial statements will not be prevented or corrected. Such a misstatement may occur on an annual basis or through interim financial reporting, personnel lacking in sufficient accounting expertise to accurately prepare the financial statements; and failure to reconcile significant account balances. The material weaknesses in ICFR must be publicly reported. Flaws in control systems that fall below “material” are reported within the company, either to company management or the audit committee . Thus, this process is, in essence, an exercise of risk analysis. For ICFR purposes, the meanings of “reasonably possible” and “material” rely upon long-established definitions of these same terms that exist with respect to accounting. Yes the material weakness may change in accordance with the preventative measures we are taken in ICFR.Prevent all types of material weakness before admitting an error in an organisation under the collecting and receiving materials for the production purpose.