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ExpandAS No. 1: References in Auditors’ Reports to the Standards of the Public Company Accounting Oversight Board
ExpandAS No. 3: Audit Documentation
ExpandAS No. 4: Reporting on Whether a Previously Reported Material Weakness Continues to Exist
ExpandAS No. 5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements
ExpandAS No. 6: Evaluating Consistency of Financial Statements
ExpandAS No. 7: Engagement Quality Review
ExpandAS No. 8: Audit Risk
ExpandAS No. 9: Audit Planning
ExpandAS No. 10: Supervision of the Audit Engagement
ExpandAS No. 11: Consideration of Materiality in Planning and Performing an Audit
ExpandAS No. 12: Identifying and Assessing Risks of Material Misstatement
ExpandAS No. 13: The Auditor's Responses to the Risks of Material Misstatement
ExpandAS No. 14: Evaluating Audit Results
ExpandAS No. 15: Audit Evidence
ExpandAS No. 16: Communications with Audit Committees
ExpandAS No. 17: Auditing Supplemental Information Accompanying Audited Financial Statements
ExpandAU Section 100 - Statements on Auditing Standards -- Introduction
ExpandAU Section 200 - The General Standards
CollapseAU Section 300 - The Standards of Field Work
AU Section 315 - Communications Between Predecessor and Successor Auditors
AU Section 316 - Consideration of Fraud in a Financial Statement Audit
AU Section 317 - Illegal Acts by Clients
AU Section 9317 - Illegal Acts by Clients: Auditing Interpretations of Section 317
AU Section 322 - The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements
AU Section 324 - Service Organizations
AU Section 9324 - Service Organizations: Auditing Interpretations of Section 324
AU Section 325 - Communications About Control Deficiencies in an Audit of Financial Statements
AU Section 9325 - Communication of Internal Control Related Matters Noted in an Audit: Auditing Interpretations of Section 325
AU Section 9326 - Evidential Matter: Auditing Interpretations of Section 326
AU Section 328 - Auditing Fair Value Measurements and Disclosures
AU Section 329 - Substantive Analytical Procedures
AU Section 330 - The Confirmation Process
AU Section 331 - Inventories
AU Section 332 - Auditing Derivative Instruments, Hedging Activities, and Investments in Securities
AU Section 333 - Management Representations
AU Section 9333 - Management Representations: Auditing Interpretations of Section 333
AU Section 334 - Related Parties
AU Section 9334 - Related Parties: Auditing Interpretations of Section 334
AU Section 336 - Using the Work of a Specialist
AU Section 9336 - Using the Work of a Specialist: Auditing Interpretations of Section 336
AU Section 337 - Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments
AU Section 9337 - Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments: Auditing Interpretations of Section 337
AU Section 341 - The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern
AU Section 9341 - The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern: Auditing Interpretations of Section 341
AU Section 342 - Auditing Accounting Estimates
AU Section 9342 - Auditing Accounting Estimates: Auditing Interpretations of Section 342
AU Section 350 - Audit Sampling
AU Section 390 - Consideration of Omitted Procedures After the Report Date
ExpandAU Section 400 - The First, Second, and Third Standards of Reporting
ExpandAU Section 500 - The Fourth Standard of Reporting
ExpandAU Section 600 - Other Types of Reports
ExpandAU Section 700 - Special Topics
ExpandAU Section 800 - Compliance Auditing
ExpandAU Section 900 - Special Reports of the Committee on Auditing Procedures

AU Section 9317

Illegal Acts by Clients: Auditing Interpretations of Section 317

1.    Consideration of Internal Control in a Financial Statement Audit and the Foreign Corrupt Practices Act

.01

Question—The second standard of field work requires the auditor to obtain a sufficient understanding of internal control to plan the audit and to determine the nature, timing, and extent of tests to be performed. Is the auditor of an entity subject to the Securities Exchange Act of 1934 required, because of the Foreign Corrupt Practices Act of 1977 and the provisions of section 317, to expand his consideration of internal control beyond that which is required by the second standard of field work?

.02

Interpretation—No. There is nothing in the Act or the related legislative history that purports to alter the auditor's duty to his client or the purpose of his consideration of internal control. The Act creates express new duties only for companies subject to the Securities Exchange Act of 1934, not for auditors.

[Issue Date: October, 1978.]

2.    Material Weaknesses in Internal Control and the Foreign Corrupt Practices Act

.03

Question—What course of action should be followed by the auditor of an entity subject to the internal accounting control provision of the Foreign Corrupt Practices Act of 1977 to comply with section 317 when a material weakness in internal control comes to his attention?

.04

Interpretation—The standards applied by an auditor in determining a material weakness in internal control may differ from the standards for determining a violation of the Act. Nevertheless, a specific material weakness may ultimately be determined to be a violation and, hence, an illegal act. Therefore, the auditor should inquire of the client's management and consult with the client's legal counsel as to whether the material weakness is a violation of the Act.

.05

In consultation with management and legal counsel, consideration should be given to corrective action taken or in process. If management has concluded that corrective action for a material weakness is not practicable, consideration should be given to the reasons underlying that conclusion, including management's evaluation of the costs of correction in relation to the expected benefit to be derived. fn 1 If it is determined that there has been a violation of the Act and appropriate consideration is not given to the violation, the auditor should consider withdrawing from the current engagement or dissociating himself from any future relationship with the client (see section 317.22).

.06

A violation of the internal accounting control provision of the Act would not, in and of itself, have a direct effect on amounts presented in audited financial statements. However, the contingent monetary effect on an entity ultimately determined to have willfully violated the internal accounting control provision of the Act could be fines of up to $10,000 for the violation. The auditor should consider the materiality of such contingent monetary effect in relation to the audited financial statements taken as a whole. Other loss contingencies, as defined by FASB Statement No. 5 [AC section C59], ordinarily would not result from a weakness in internal control which gives rise to such a violation of the Act.

[Issue Date: October, 1978.]

Footnotes (AU Section 9317 — Illegal Acts by Clients: Auditing Interpretations of Section 317):

fn 1 The legislative history of the Act indicates that cost-benefit considerations are appropriate in determining compliance with the accounting provisions of the Act. For example, the Senate committee report stated that "the size of the business, diversity of operations, degree of centralization of financial and operating management, amount of contact by top management with day-to-day operations, and numerous other circumstances are factors which management must consider in establishing and maintaining an internal accounting control system."

Copyright © 1997, American Institute of Certified Public Accountants, Inc.