A.01 Internet Problem (Worksheet 6)

Shelly Huzaynah 21207019


Auditing 2

Question :

  1. Read the statements issued by the PCAOB and SEC on May 16, 2005 and briefly describe the apparent underlying cause(s) for auditors’ failure in applying the concept of reasonable assurance. Hint: Read the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”

Answer :

Some auditors failure in applying the concept of reasonable assurance in their first year. Based on Auditing Standard No. 2 is for the auditor to obtain evidence that a company’s control system reasonably assures that its financial statements do not contain material misstatements. To accomplish this, the auditor must not only exercise judgment to determine how to apply the standard to audit clients in different industries and of different sizes, but also exercise judgment to focus their work on areas that pose higher risks of misstatement, due either to errors or fraud. Reliance on standardized checklists that lead to a focus on controls in low-risk areas obviously fails to meet this objective.

Question :

2.  Why do you think firms had such difficulty in applying the concept of reasonable assurance during the first year of implementation of Section 404?

Answer :

The first year’s implementation of Section 404 required a tremendous effort on the part of management and auditors, as well as the commitment of substantial corporate resources. The lessons learned so far – and to be learned as we complete our first cycle of inspections of audits under Auditing Standard No. 2 – should provide a solid basis for substantial improvement in the process, including significant cost reduction in the future.

Source :


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