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• Material -the actual or potential misstatement would be material to the financial <br />statements <br />A Ladder Approach <br />Mitigating Effects of Compensating Controls <br />• Management and the auditor should also evaluate the possible mitigating effects of <br />compensating controls <br />- Although compensating controls mitigate the effects of a control deficiency, and <br />may prevent the control deficiency from rising to the level of a significant <br />deficiency or material weakness, they do nat eliminate the control deficiency <br />Form & Content of Communication <br />The auditor must communicate in writing to management and those charged with <br />governance all - <br />- Significant deficiencies <br />- Material weaknesses <br />- All significant deficiencies and material weaknesses communicated in previous <br />audits that have not yet been remediated <br />• The auditor should not issue a written communication stating that no significant <br />deficiencies were identified during the audit because of the potential for <br />misinterpretation <br />Other Items of Note <br />• The auditor cannot be a part of the client's internal control <br />- A control deficiency cannot be mitigated by anything done by the external auditor <br />- However, a CPA firm other than the auditor can be a part of a client's internal <br />control <br />• An auditor can still express a clean opinion on the financial statements even though <br />material weaknesses in internal control are present because the auditor has <br />performed sufficient procedures and obtained appropriate audit evidence to afford <br />reasonable assurance that the financial statements are free from material <br />misstatement <br />Government Audit Quality Center {GAQC) <br />• GAQC Alert #62 (issued 10.15.2007) <br />- Addresses the applicability of SAS 112 to Single Audits conducted in accordance <br />with OMB Circular A-133 <br />• Recognizes that SAS 112 is applicable to evaluating control deficiencies in <br />internal control over financial reporting in a financial statement audit <br />• Recognizes that the same criteria can be used to evaluate control deficiencies <br />in internal control over compliance in a Single Audit <br />The AICPA is scheduled to release an Audit Risk Alert, Government Auditing <br />Standards and Circular A-933 Audits, on November 1, 2007 <br />Commissioner Gordon asked about the consequences for Orange County if there <br />are deficiencies. Doug Beelendorf said that the Board of County Commissioners is <br />responsible for the County, and if there are significant deficiencies and material <br />