Evaluating Control Deficiencies under PCAOB Auditing Standard No 2

Under the requirements of Section 404 of the Sarbanes–Oxley Act (SOX), management is required to provide an assessment of both the internal control design and the operating effectiveness. As part of documenting the control design and testing its effectiveness, it is anticipated that deficiencies will arise.

One of the challenges in the process is evaluating the deficiencies and classifying them. Control deficiencies are classified in the PCAOB Auditing Standard No 2 from internal control deficiencies to significant deficiencies to material weaknesses in internal control.

The definitions of the differences among these categories are difficult to interpret and are noted at the end of the article for reference.

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