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Implications of SAS 112 NCURA Regional Meeting Park City, Utah April 22-27, 2006
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Agenda What is SAS 112? Implications for A133 Audit Examples of Key Controls How Campuses Can Prepare Q & A
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What is SAS112? Statement of Auditing Standards that applies to not-for-profit entities Designed to make the standards used for audit of not-for-profits consistent with those already in place for public companies Effective Date – For years ending on or after December 15, 2006
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Purpose of SAS 112 To establish a standard for determining seriousness of a control issue and classifying it into one of three categories: control deficiency significant deficiency material weakness To ensure effectiveness of internal controls that impact financial statements
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SAS 112 Deficiencies A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies A material weakness is a significant deficiency, or a combination of significant deficiencies
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SAS Deficiencies—Illustrative Quantifications (Source: PwC) Classification of Deficiency Likelihood of: With Potential Magnitude of Misstatement*: Control DeficiencyRemote Less than a 5% to 10% Chance Inconsequential Less than a 0.1% to 0.2% or revenues or expenses Significant DeficiencyMore than remote More than a 5% to 10% chance More than inconsequential Greater than 0.1% to 0.2% of revenues or expenses Material WeaknessMore than remote More than a 5% to 10% chance Material Greater than 1.0% of revenues or expenses *The levels of magnitude are still under discussion and may be revised as practice evolves.
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Implications for A133 Audit The GAO has adopted same definitions of control weaknesses in Yellow Book For key controls testing: an error rate of 1 in 50 is OK an error rate of 2 in 50 fails Note: Error = control failure not necessarily an accounting error Expectation is that there will be more significant deficiencies and material weaknesses than in the past.
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How Campuses Can Prepare Controller’s Office –Interpret University Policies and Procedures and Regulations and Promote Best Practices –Act as a liaison between external auditors and departments –Agree upon key controls with external auditors –Provide guidance, key controls framework, and communication for SAS-112 implementation to departments
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How Campuses Can Prepare (con’t) Departments –Identify and document applicable significant key controls in specific area(s) –Implement key controls –Document evidence of review for all levels when performed (signature and/or email) –Perform self-assessment and test key controls to ensure the key controls are in place Document evidence of review –Fix SAS 112 deficiencies when identified Document evidence of corrective action taken
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Q & A
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