Scoping 1926



  • Yes, you can either replace the 5% of EBITDA with 5% of owners equity (Net Assets) or 1% of Total Assets



  • And I had indeed made a reference to SAB-99 for qualitative factors mentioned by EMM



  • Thanks Chaava.
    Regards,
    EMM



  • We do have separate scoping levels for our income statement (USD1MM) and our balance sheet (USD5MM). While the balance sheet materiality level is much higher than the income statement, the income statement level generally drives most of our testing as most balance sheet errors translate into income statement errors.



  • I have new question on scoping. If we’re the parent and we have subsidiary. There is a significant account in the subsidiary. Should this be in SOX scope of parent ? Do we need Management of subsidiary to do SOX in their company especially for that account ? Who can help advise me, please.



  • Scoping is a judgment call. If the subsidiary has one account that is significant to your consolidated financial statements, then you should probably identify controls covering off on financial statement assertions for that account in that subsidiary. It is management’s call as to who performs the controls identification and testing, but I would suggest that the parent company be quite involved in the process.



  • I have new question on scoping. If we’re the parent and we have subsidiary. There is a significant account in the subsidiary. Should this be in SOX scope of parent ? Do we need Management of subsidiary to do SOX in their company especially for that account ? Who can help advise me, please.
    It is the parent that needs to be compliant - never the subsidiary.
    Accounts/processes need to be scoped with reference to the materiality and overall coverage of the parent



  • My company completed an acquisition of a company in 11/06 that will cause our revenues to increase by over 50%. Obviously, our 10k for 2006 will not reflect the financial impact of this company, so how should this acquisition be factored into our 2007 scoping process? I’m considering getting the 2006 actuals for this new company and compiling with our 10k numbers as a starting point. Does this seem reasonable? Should forecasted numbers be used when scoping? We’re a non-accelerated filer, so this is new territory for me.%0AMuch thanks in advance for any advice provided. %0AForecast can never be used for Sarbanes Oxley scoping, it has the be actual figures. In your case the actual 2006 figures should be used.



  • My company completed an acquisition of a company in 11/06 that will cause our revenues to increase by over 50%. Obviously, our 10k for 2006 will not reflect the financial impact of this company, so how should this acquisition be factored into our 2007 scoping process? I’m considering getting the 2006 actuals for this new company and compiling with our 10k numbers as a starting point. Does this seem reasonable? Should forecasted numbers be used when scoping? We’re a non-accelerated filer, so this is new territory for me.%0AMuch thanks in advance for any advice provided. %0AForecast can never be used for Sarbanes Oxley scoping, it has the be actual figures. In your case the actual 2006 figures should be used.



  • Forecast can never be used for Sarbanes Oxley scoping, it has the be actual figures. In your case the actual 2006 figures should be used.
    Yes and no. The best indicator of what the current year will look like will come from your forecast. If you anticipate significant changes in the makeup of your business, then you should change your scope of work to reflect that, based on your latest forecast. At the end of the year, you do need to ensure that you had adequate coverage of your FS through SOX controls testing.



  • Forecast can never be used for Sarbanes Oxley scoping, it has the be actual figures. In your case the actual 2006 figures should be used.
    That’s not strictly true, you could stick your figure in the air for scoping purposes if you so desired.
    Although you might have tougher job convincing your auditors that you have sufficient coverage.



  • I think this is where the terms quantitative and qualitative kick in. I would suggest that you would use actual figures to come up with a quantitative measure for your intial cut at scoping. You would then use your forecasting, etc to qualitatively assess the results of your scope to identify any areas that are expected to increase/decrease in activity. This will enable you to refine your scoping accordingly.


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