[The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. The auditor should properly plan the audit of internal control over financial reporting and properly supervise the engagement team members.
Appendix A: Examples of Information and Sources of Information That May be Gathered During the Audit That Could Indicate That Related Parties or Relationships or Transactions with Related Parties Previously Undisclosed to the Auditor Might Exist 2.
Effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. For audits of fiscal years beginning before December 15, 2010, click here.] 3.
Additionally, some larger, complex companies may have less complex units or processes.
Factors that might indicate less complex operations include: fewer business lines; less complex business processes and financial reporting systems; more centralized accounting functions; extensive involvement by senior management in the day-to-day activities of the business; and fewer levels of management, each with a wide span of control. Risk assessment underlies the entire audit process described by this standard, including the determination of significant accounts and disclosures and relevant assertions, the selection of controls to test, and the determination of the evidence necessary for a given control. A direct relationship exists between the degree of risk that a material weakness could exist in a particular area of the company's internal control over financial reporting and the amount of audit attention that should be devoted to that area.
Once you have identified a consolidation, keep an eye out for any possible breakouts above or below the upper and lower trading range bounds.
These breakouts can be accompanied by large increases in volume and lead to large gains or losses in a short period of time, especially if the stock has been in consolidation for a longer stretch of time.
[The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. The auditor's objective in an audit of internal control over financial reporting is to express an opinion on the effectiveness of the company's internal control over financial reporting.
Because a company's internal control cannot be considered effective if one or more material weaknesses exist, to form a basis for expressing an opinion, the auditor must plan and perform the audit to obtain appropriate evidence that is sufficient to obtain reasonable assurance about whether material weaknesses exist as of the date specified in management's assessment.
The second characteristic is a narrow trading range; be careful, though, because not all stocks and securities have similar volatility. The last feature to look for is a relatively low level of trading volume that does not exhibit major spikes.
Consolidation is neither positive nor negative on its own.
This standard establishes the fieldwork and reporting standards applicable to an audit of internal control over financial reporting. The auditor should use the same suitable, recognized control framework to perform his or her audit of internal control over financial reporting as management uses for its annual evaluation of the effectiveness of the company's internal control over financial reporting. The audit of internal control over financial reporting should be integrated with the audit of the financial statements.