Internal control is the method put into place by a company to be sure the integrity of financial and accounting information, meets operational, profitability targets, and transmit management policies throughout the organization (Investopedia). Control deficiency is the result of the design or operation of the control not allowing management, employees to prevent, or correct financial misstatements (Ken Plessner CPA). Material weakness occurs with the possibility of the material misstatement not being prevented, detected, and corrected on a timely basis (Ken Plessner CPA).
Significant deficiency requires attention by those in charge but is not as severe as material weakness (Ken Plessner CPA). SAS 115 allows the practitioners to more effectively use their judgment when they become aware of and determine the severity of the deficiency found. If it is determined the deficiency is severe enough, they will report it in writing, to management, and administration (Ken Plessner CPA). Benefits of the changes As with SAS 112, SAS 115 promotes clients understanding of their organization’s internal control weaknesses, which can benefit them in several ways, including (Thomas J.
Client Memo Essay Example
Ryan): * Written communication clarifies identified deficiencies determined to be significant or material weaknesses so management can weigh the risks and determine how they will be addressed. * Management addressing the deficiencies may result in reduced risks to the business because of financial reporting processes and controls being improved. This will also lead to more efficient audits moving forward. * Fraud may be deterred when higher internal controls are attained due to the identification of significant deficiencies and material weaknesses. As a result of managements heightened awareness and education on internal control, a client will be more confident with the internal control of financial reporting. Conclusion The changes put into place by replacing SAS 112 with SAS 115 give Certified Public Accounts (CPA) better ability to judge the severity of internal control deficiencies or material weaknesses that arise during an audit. The CPA’s, in turn will be able better to communicate the found deficiencies to the organizations being audited. As a result they can better assist their clients in obtaining constancy, accuracy, and better administrative practices (Ken Plessner CPA).
Works Cited Investopedia. (n. d. )