Approved Budget was Inaccurately Loaded to the System 1477

  • Hello There:
    Can someone enlighten me on this one? I am not too sure which assertion this deficiency affected.

  • Hi,
    Uploading an incorrect budget to the system will not necessarily result in a material control weakness if the error is corrected timely AND if as a result of the error, existing internal controls over financial reporting (management reviews, segregation of duties, reconciliations, etc.) are still in place and operating effectively.
    Typically, when a control deficiency is identified, it is necessary to assess the control deficiency and related risk(s). If the risks are deemed to be significant and may lead to a material mistatement in the financial statements, it is necessary to remediate the control deficiency or to report it either as a disclosure or as a material control weakness as appropriate.
    For a formal decision diagram on the assessment of control deficiencies, you can use the guidance document that was developed by the Big-4. It provides a series of procedures to assess the control deficiency and will enable you to determine if it should be considered to be a material control weakness or as a significant control deficiency. Then, you can determine how to report it if it cannot be remediated timely.
    Hope this helps,

  • Hello Milan,
    Thanks so much for your help.

  • Here’s the link to the guidance document referenced in the previous posting.
    i think this site prefers that no links are posted in replies so if you don’t see a hyperlink above, you should let you finger hang on the w key and add the customary www before the address.

  • I don’t know that you would necessarily map an assertion to this. Generally, the budget preparation and monitoring is more of an entity-level control than a direct financial reporting control. However, if the budget numbers are used to measure performance off of which bonuses are calculated, then bad budget information could lead to incorrect bonus accruals. You will need to understand what control objectives the budget preparation and monitoring relates to in order to determine whether or not bad budget information in the system could have an impact on your financial reporting.

  • I agree with KyMike: it all depends on how the budget information is used.
    A few of our clients use the budget-to-actual comparisons in there high-level reviews for reasonableness. In this case, since judgments are based on the comparision, they needed controls to assure that the comparisions would be complete and accurate.
    Just a thought.

  • To cut the long argument short, the subject affects Completeness Assertion for Variance Analysis to ensure that nothing is missed out.
    The subject also affects right/obligation assertion affecting determination of Key Performance Indicator thereby facilitating correct calculation of performance related incentives.
    The subject also affects right/obligation assertion affecting entity’s requirement to determine correct earning forecast for public release.
    I hope that this helps

  • If bonuses are inaccurately calculated due to an inaccurate calculation based on the incorrect budget figures, yet this inaccuracy is accurately reflected in the AFS and paid out correctly then I do not believe this is a SOX issue. As long as the AFS reflect what has transpired financially then there is no problem. SOX is all about reporting the state of the business not ensuring management make a correct decision or not.
    If management used incorrect information to make a business decision which resulted in large losses. As long as these losses are correctly captured to the AFS and stated, then this is not a SOX issue that the wrong management information was used and it would not be reportable as such.
    I would suggest this then is not a SOX issue even if the analytics were wrong due to the incorrect budget being loaded and compared against. There must be other more important controls being relied upon with analytics ( using comparisons to the budget) being the ‘control’ that gives management a bit of a good feeling when the actual to budget are in line.
    Hope that helps

  • I am surprised at the responses to this thread :roll:
    In most, if not all cases, the inaccurate loading of a budget (approved or otherwise) IS NOT A DEFICIENCY.
    Budgets do not form part of the financial statements.
    Sometimes a budget will will be utilised as part of a control i.e. comparison of actual v budget. However if that control showed that the budget was entered incorrectly, so what? If anything that would show you that the control was OPERATING EFFECTIVELY.
    If your budget was complete nonsense then one would question whether the comparison of budget v actual could be an effectively designed control to meet specific control objectives. However, the fact that the budget was nonsense wouold still not be a SOX deficiency.

  • I agree with Mike.
    Budgets, in of themselves, correctly or incorrectly loaded, are NOT relevant for SOX purposes and may pose only an indirect risk and influence on the accuracy of financial reporting.
    Uploading an incorrect budget to the system will not necessarily result in a material control weakness…

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