Evaluating Internal Control Deficiencies Guide

May 2022

Management is responsible for maintaining a system of internal control over financial reporting (ICFR) that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with the applicable accounting principles framework. The Securities and Exchange Commission (SEC) rules require management of registrants to evaluate on an annual basis whether ICFR is effective at providing reasonable assurance and to disclose its assessment to investors. In supporting its assessment, management is responsible for maintaining evidential matter, including documentation.

Our guide Management Mini Guide for Evaluating Control Deficiencies was developed to assist management in evaluating identified control deficiencies individually and in the aggregate. While the guide focuses on SEC requirements and the responsibilities of management and the audit committee in the assessment and documentation of an identified control deficiency, this guide is also relevant for private companies, as the deficiency evaluation process is consistent.
 
The guide will assist management through the process, including:
  1. Identification of the deficiency
  2. Considerations over the magnitude and likelihood of a potential misstatement
  3. Identification of compensating controls
  4. Assessment of deficiencies for potential aggregation
  5. Conclusions on the severity of the deficiency
  6. Documentation of conclusions and reporting considerations
 
Additionally, this guide includes important reminders related to the remediation of identified control deficiencies.