Keywords

risk assessment, financial misstatements, control documentation

Abstract

This study focuses on subjective, judgment-based management review controls (MRCs) used by management teams of public companies (hereinafter referenced as “preparers” or “organizations”) as part of their efforts to address the risk of material misstatements in financial reporting and to effectively and efficiently provide management with reasonable assurance that internal control over financial reporting (ICFR) is effective. This report provides information and insight useful to preparers, auditors, and regulators on issues surrounding the design, implementation, execution, and documentation of MRCs, including issues in the context of ICFR assessments and attestations under Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). Practices related to the design, performance, and documentation of MRCs vary widely across different organizations. Preparers, auditors, and regulators (e.g., the Public Company Accounting Oversight Board [PCAOB] Division of Registration and Inspections) have all identified this as an area in which opportunities for improvement exist. By gathering experiences and perspectives from preparers and auditors in the field, this study aims to provide a useful window into current practices and areas of concern, as well as challenges that might constructively be addressed by preparers, auditors, and regulators. It also aims to identify ideas and insights that might be implemented by all parties, collectively, to improve an area critical to effective internal control over financial reporting. Although our analysis focuses mostly on the design and implementation of MRCs, some of our observations have broader implications important to the entire system of internal control over financial reporting and the related provisions in SOX.

Original Publication Citation

“Perspectives on Management Review Controls: Challenges and Solutions—Insights from a Qualitative Study of the Issues,” w/ J. Fogarty & M. Beasley, published by AICPA Center for Audit Quality, Nov. 2020.

Document Type

Peer-Reviewed Article

Publication Date

2020

Publisher

AICPA Center for Audit Quality

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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