Finding Text
Weakness regarding preparing financial statements (design deficiency) Criteria: Effective internal control over financial reporting involves the identification and analysis of the risks of material misstatement to the company?s audited financial statements and should determine how those identified risks should are managed. Condition: Management has not designed effective controls over the preparation of the financial statements and certain year end journal entries to prevent or detect material misstatements, including footnote disclosures. Management relies on the auditor firm to make certain year end adjustments and to properly prepare the financial statements and related footnote disclosures. If the audit firm did not properly propose the journal entries and prepare the financial statements and related footnote disclosures, the Housing Authority may not identify the error in advance of issuance. Context: The audit firm has been preparing certain year end journal entries and the financial statements and related footnote disclosures for several years. Each year the auditee reviews and approves the journal entries and a draft of the financial statements prior to issuance. Effect: The auditee relies on the auditor firm to make certain year end adjustments and to properly prepare the financial statements and related footnote disclosures. If the audit firm did not properly propose the journal entries and prepare the financial statements and related footnote disclosures, the Housing Authority may not identify the error in advance of issuance. Cause: Due to the limited number of personnel and their financial reporting expertise, management has elected to rely on the audit firm to make certain year end adjustments and prepare its financial statements and related footnote disclosures. Recommendation: It is not cost effective for the auditee to employ additional personnel solely for financial reporting purposes. Therefore, the auditee should use its current knowledge obtained from training seminars and trade associations to mitigate the situation. Views of responsible officials and planned corrective actions: Management acknowledges that they are not experts in financial reporting and cannot afford to hire additional personnel for this purpose. However, they have obtained a wealth of knowledge from training seminars and trade associations. They will continue to be alert to changes in financial reporting requirements to ensure that they are implemented by their auditor on a timely basis.