Internal Control Assigment PDF

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Summary

Assignment regarding Internal Controls of two companies....

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10/15/2016 Internal Control Assignment Hawaiian Electric (HE) Submission Date: 2/23/2016 The management report regarding Hawaiian Electric’s HE internal controls over financial reporting stated HE did not maintain effective controls over the preparation and review processes of its financial statements. (Hawaiian Electric, pg .184) The controls in place did not make sure that non-cash transactions were properly identified evaluated and presented in the statement of cash flows. This deficiency caused a restatement of net cash and revision of net cash provided by operating activities. This assumption of not maintaining effective internal controls is based on the criteria in the Internal Control-Integrated Framework (2013) from COSO. (Hawaiian Electric, pg.185) Similarly, PricewaterhouseCoopers (PwC) the independent auditor’s of HE states that HE did not maintain effective internal controls over financial reporting as of 12/31/2015, based on COSO. PwC also identified a weakness in internal controls regarding the preparation and review processes of HE’s statement of cash flow by referring to the management report issued in the 10K. Although PwC recognized and agrees with managements assertions regarding weak internal controls, their overall financial statement opinion was not changed. (Hawaiian Electric, pg.84) The auditor report and management report are very similar. The same internal control deficiencies and restatements of net cash and revision of net cash provided by operating activities are stated in both reports. Both reports concluded that internal controls are not effective. Diodes, Inc Submission Date: 3/11/2016 The management’s report regarding Diodes, Inc. stated that the company did not have effective internal control over financial reporting for the period 12/31/2015. The reason behind this conclusion is that management indentified errors in accounting for equity awards and change-incontrol agreements related to the recent acquisition of Pericom Semiconductors. (Diodes, pg.46) The auditors of Diodes, Moss Adams LLP expressed a similar opinion stating that Diodes did not have effective controls relating to the accounting of equity awards and change-in-control agreements. These deficiencies resulted from the acquisition of Pericom and the lack resources in Diodes accounting department to handle the acquisition correctly. Even though Moss Adams agrees with Diodes management regarding the weakness of internal controls, their audit opinion was not changed. (Diodes, pg.50) The management report of Diodes Inc and the auditor report expressed by Moss Adams LLP are very similar. Both deficiencies in control regarding errors in accounting for equity awards and change in control agreements are presented.

References

Diodes, Inc. (2015). 2015 annual report. Retrieved from https://www.sec.gov/Archives/edgar/data/46207/000035470716000128/a201510k.htm

Hawaiian Electric. (2015). 2015 annual report. Retrieved from https://www.sec.gov/Archives/edgar/data/29002/000156459016014609/diod10k_20151231.htm...