AG 2008 04 21 - Laserfiche WebLink

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lN~ POTTER&COMPANY, P.A. CERTIFIEn PUBLIC ACCtlUNTANTS December 26, 2007 Mrs. Pam Dubois Caharrus County P,O. Box 707 Concord, North Carolina 28025 RE: Changes in Audit Requirements Dear Pam: The post-Enron period continues to raise legitimate questions about corporate ethics end govemanoe, including the role of a company's board'of directors and its audik and finance committees, internal contmla, compliance with accounting and audit standards and other SEC reporting requirements, financial reporting transparency, khe adequacy of the current financial reporting model, the auditor disciplinary and quality review process, how analysts use aveilablc financial information in making buy/sell recommendations tc investors, and other issues. In response to this financial reporting environment, the Auditing Standards Board, working in concert with the international Auditing and Assurance Standards Board and the Public Companies Accounting Oversight Board has completed a project to develop stranger and more definitive auditing. standards intended to enhance auditor performance and thereby to improve audit effectiveness. Risk-Based Auditing Traditionally, auditors have focused primarily on the accounts comprising the financial statements, and .risk was assessed based on the accounts' size, characteristics, and Yelated controls. During khe 1990'x, many auditors moved away fiom audit approaches that focused narrowly on financial statement aocounts toward broader based'audit approaches, which are sometimes labeled as "risk-based auditing" or"business risk auditing. Under these newer methodologies, auditors take a more holistic view of the business, including reviewing business strategies and processes, internal end external factors, and performance measurement practices to idenN$+ risks of material misstatement. Then the auditors devote the most audit attention to the higher risk areas. Risk-based auditing is more affective because (a) auditors develop a greater understanding of the companies, their environments, and business processes and (b) their audit procedures are mare targeted to the'. areas that are more likely prone to materiel misstatement. To that end, the Auditing Standards Board has issued what will be eleven amendments to existing aodiNng standards to improve the quality and effectiveness of audits end to enhance the auditors` application of the risk-based audit model by requiring: • More in-depth understanding of the entity and its environment, including internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them. ~_