Material Weakness = Restated FS?

  • Creator
    Topic
  • #183225
    Boate
    Participant

    Can someone explain to me how restating a prior years F/S to correct an error is considered to be an indicator of a material weakness? Is it simply because the auditor found the error and I/C didn’t but that doesn’t necessarily mean I/C will miss the weakness every year or am I reading to much into this?

    AUD: (65)(66) 77
    REG: (66) (48) destroyed me mentally.....
    FAR: (68) (66)(69)(71)
    BEC: (63) 75

    "Greatness is not some precious thing, it is no more unique to us than breathing. We are ALL capable of it."

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  • #506003
    M.O.D.
    Member

    From my auditing textbook (Arens):

    “A material weakness (in IC) exists if a significant deficiency, by itself, or in combination with others … results in a reasonable possibility that IC will not prevent or detect material financial misstatements on a timely basis.”

    So if a company had to restate, it was a material misstatement which was not detected in a timely basis. So, working backwards, it is a reasonable possibility that IC had a significant deficiency, thus a material weakness.

    I am not sure why you think it would cover all years, just the year of the misstatement.

    BA Mathematics, UC Berkeley
    Certificates in CPA and EA preparation, College of San Mateo
    CMA I 420, II 470
    FAR 91, AUD Feb 2015 (Gleim self-study)

    #506054
    M.O.D.
    Member

    From my auditing textbook (Arens):

    “A material weakness (in IC) exists if a significant deficiency, by itself, or in combination with others … results in a reasonable possibility that IC will not prevent or detect material financial misstatements on a timely basis.”

    So if a company had to restate, it was a material misstatement which was not detected in a timely basis. So, working backwards, it is a reasonable possibility that IC had a significant deficiency, thus a material weakness.

    I am not sure why you think it would cover all years, just the year of the misstatement.

    BA Mathematics, UC Berkeley
    Certificates in CPA and EA preparation, College of San Mateo
    CMA I 420, II 470
    FAR 91, AUD Feb 2015 (Gleim self-study)

    #506006
    mla1169
    Participant

    You are correct. It indicates that the same I/C would likely allow the same misstatement to continue to occur going forward. The control itself needs to be changed, restating F/S corrects the misstatement but not the weakness.

    FAR- 77
    AUD -49, 71, 84
    REG -56,75!
    BEC -75

    Massachusetts CPA (non reporting) since 3/12.

    #506056
    mla1169
    Participant

    You are correct. It indicates that the same I/C would likely allow the same misstatement to continue to occur going forward. The control itself needs to be changed, restating F/S corrects the misstatement but not the weakness.

    FAR- 77
    AUD -49, 71, 84
    REG -56,75!
    BEC -75

    Massachusetts CPA (non reporting) since 3/12.

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