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But today, the fast pace of technological innovation gives companies new problems to handle.With the advent of Big Data and the ability to collect massive quantities of data, companies have turned to computerized internal control testing options that don’t limit testing to particular samples.One significant advantage of a strong internal audit function is spelled out by the American Institute of CPAs (AICPA) in Statement on Auditing Standards (SAS) No.
If management understands the importance of strong internal controls and how external auditors relying on the internal audit function can lower audit fees, they can implement internal control testing strategies using technology to detect, prevent, or remedy significant deficiencies in their internal controls.
Once again, management must decide whether it’s worthwhile to implement internal control testing strategies by investing in new technology.
Do the benefits of implementing various internal control testing strategies outweigh the costs?
We don’t purport to answer this question, but we can shed light on the differences in specific benefits for distinct internal control testing systems.
Today’s business environment has been evolving quickly due to rapid technological innovation, presenting companies with problems they haven’t encountered before.
In this increasingly connected world, internal controls have become critical—not only to ensure operational effectiveness and efficiency, but also to fortify the reliability of financial reporting, compliance with laws and regulations, and the preservation of data integrity.
Companies have various options for testing internal controls.
In past years, management could test internal controls manually by physically examining documents.
Although SOX requires that external auditors only identify material weaknesses in internal controls over financial reporting, the Public Company Accounting Oversight Board (PCAOB) requires an external auditor to notify, in writing, both the board and management of any material weaknesses or significant deficiencies. 2201, “An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements,” defines a significant deficiency as less severe than a material weakness but important enough to merit attention by those in charge of corporate governance.
When SOX was first being proposed and then implemented, one objection was the increased costs that these kinds of changes would add to audits.