Question

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

A) accept responsibility for the effectiveness of the entity's internal control over financial reporting.

B) evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria.

C) support its evaluation with sufficient evidence, including documentation.

D) present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.

Answer 1

Management of a public company is required to accept responsibility for and evaluate internal controls, and provide evidence for their effectiveness, but not to present an oral assessment of these controls for an auditor’s completion of the audit.

Step-by-step explanation:

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except D) present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year. Correct audit protocol requires management to accept responsibility for the effectiveness of the entity’s internal controls (A), evaluate the effectiveness of these controls (B), and support the evaluation with sufficient evidence (C), but oral assessments are not a standard requirement.

The management's role in audit compliance includes ensuring that a company's financial records are reliable and transparent. This is crucial for all stakeholders, including the board of directors, the auditing firm, and outside investors. Inadequate corporate governance can lead to misinformation, as highlighted by the collapse of Lehman Brothers, where the said governance failed to provide investors with accurate financial information about the firm's operations.