Control Environment  
SEC & PCAOB > PCAOB > Auditing Standard No. 2 > Control Environment

PCAOB Release 2004-001
March 9, 2004
Page A41 Standard

114. The control environment encompasses the following factors:

Integrity and ethical values;
Commitment to competence;
Board of directors or audit committee participation;
Management's philosophy and operating style;
Organizational structure;
Assignment of authority and responsibility; and
Human resource policies and procedures.

115. Controls that are part of the control environment include, but are not limited to, controls specifically established to prevent and detect fraud that is at least reasonably possible to result in material misstatement of the financial statements.

Note: The term "reasonably possible" has the same meaning as in FAS No. 5. See the first note to paragraph 9 for further discussion. 16/ See the COSO report and paragraph .110 of AU sec. 319, Internal Control in a Financial Statement Audit, for additional information about the factors included in the control environment.