Please reply of at least 200 words to the discussion below.
Support your assertions with at least 2 scholarly citations in APA format.any sources cited must have been published within the last five years
For the first question, the CFO of the company will argue that internal controls weakness should not be concluded as a material weakness (we will address this as MW from now on). CFO will argue that they are individually small items so they should not count. CFO will also argue to the partners at the accounting firm saying this should be a simple weakness, not MW. According to Lobo’s research, CFO’s concern is valid. Lobo’s research asserts that prior research documents several negative consequences of material weakness in ICFR and finds a robust positive association between MW and future stock price crash risk due to the consequences of MW for the divergence of investor opinion by studying the skewness of stock return distributions (Lobo et al., 2020). Therefore, it makes so much sense for the CFO to dispute such a matter with the partner at the accounting firm for many different reasons.
For the second question, according to the SEC publication, these sections (302 and 404 of the Sarbanes-Oxley Act) require that the CEO and CFO of an organization certify and assert to stakeholders that SEC disclosures, including the financial statements of the company and all supplemental disclosures, are truthful and reliable (Leech, 2003). In other words, it would be a violation of federal law. If they do not disclose, it would also against professional ethical standards for the CFO and the partner, if they are licensed to any professional licensure body. It would also cause a public PR nightmare for the company and the accounting firm for not being ethical and professional.
To answer the third question, the partner should take a thorough look at what the firm’s audit staff made. There should be all the footer and points that he is able to use as validation and substantiation of their claim. Furthermore, the partner should be very clear to the CFO on why this decision was hard to make and why they concluded this as a MW because everything adds up to the internal control MW. He or she should further elaborate on how the firm came to a decision to notate MW.
Finally, no the partner should not cover up and change the opinion on ICFR from MW to significant. This would bring the same consequence as answered in the second question. Obviously, if this was to be significant, public disclosure would not be needed and the CFO and BOD won’t have to worry about the stock prices tanking. However, this is more of an auditor judgment item. The auditor already made a decision saying that this is MW because individual items add up to so much weakness so I do not see a reason for the accounting firm’s partner to go along with CFO’s suggestions.
I would like to introduce a Bible verse about integrity for this discussion topic. Philippians 4:8 states that “Finally, brothers, whatever is true, whatever is honorable, whatever is just, whatever is pure, whatever is lovely, whatever is commendable, if there is any excellence, if there is anything worthy of praise, think about these things” (English Standard Version Bible, 2001). CFO and accounting firm’s partner should keep this verse in their hearts when it comes to making/modifying these decisions.