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AA Capital's Internal Control

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AA Capital's Internal Control
I agree with you that it was appropriate for Ernst & Young to decide not to rely on AA Capital’s internal control during 2004. The E&Y took the required (Sarbanes-Oxley) precaution of conducting and audit of the internal control system over financial reporting which led to the discovery of the $1.92 million of cash transfer made to Orecchio; even though it did not stop the fraud. Auditors can choose not to rely on a client internal control after obtaining and understanding the client’s system and the auditors determine that there is material weakness over financial reporting. PCAOB AS No. 5 “An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements” states, “if one or more material weaknesses
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