Finding Text
Criteria: Internal controls over financial reporting include those related to the actual
preparation and review of the audited consolidated financial statements. In order to
prepare a complete set of consolidated financial statements in conformity with GAAP, the
preparer must have the necessary expertise.
Condition: The Company does not have an internal control system designed to provide for
the preparation of the consolidated financial statements being audited. Company personnel
do prepare periodic consolidated financial statements and other financial information for
internal use that meets the needs of management and council. However, the Company does
not have the internal resources to prepare full‐disclosure consolidated financial statements
required by GAAP for external reporting. As auditors, we were requested to draft the
consolidated financial statements and accompanying footnotes.
Cause: The Company does not have the resources to compile their own consolidated
financial statements.
Effect: This control deficiency could result in a misstatement to the consolidated financial
statements that would not be prevented or detected.
Recommendation: This control deficiency is not unusual in a small Company. However, it is
the responsibility of management and the board of directors to decide whether to accept
the degree of risk associated with this condition based on the cost of correction and other
considerations.
Views of Responsible Officials and Planned Corrective Actions: The Company’s management
is aware of this significant deficiency. Management reviews and approves the draft annual
audited consolidated financial statements and distributes them to the users. For entities of
this size, it generally is not practical to obtain the internal expertise needed to handle all
aspects of the external financial reporting. Management recognizes this and feels it is
effectively handling its reporting responsibilities with the procedures described above.