Testing Controls Intended  
SEC & PCAOB > PCAOB > Auditing Standard No. 2 > Testing Controls

PCAOB Release 2004-001
March 9, 2004
Page 24

13. Testing Controls Intended to Prevent or Detect Fraud

Strong internal controls provide better opportunities to detect and deter fraud. For example, many frauds resulting in financial statement restatement relied upon the ability of management to exploit weaknesses in internal control. To the extent that the internal control reporting required by Section 404 can help restore investor confidence by improving the effectiveness of internal controls (and reducing the incidence of fraud), the auditing standard on performing the audit of internal control over financial reporting should emphasize controls that prevent or detect errors as well as fraud. For this reason, Auditing Standard No. 2 specifically addresses and emphasizes the importance of controls over possible fraud and requires the auditor to test controls specifically intended to prevent or detect fraud that is reasonably possible to result in material misstatement of the financial statements.