Under Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), corporate officers of publicly traded companies are required to submit an annual financial report to the SEC containing management’s assertions regarding the effectiveness of the company’s internal controls over financial reporting. When initially implementing SOX, many companies experienced the common pitfall of spending excessive amounts of time testing controls in areas that do not materially impact financial statements. Auditing Standard No. 5 (“AS5”) afforded companies the opportunity to reduce the scope of testing by focusing efforts on high-risk and material transactions.
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