UNDERSTANDING THE FINANCIAL STATEMENT CLOSE PROCESS

Guidance

SYSTEM DESCRIPTION:

Documentation of the FSCP (and any process to generate significant disclosures)

assumes a substantive approach will be taken and therefore does not contain the
ability to document and test controls. This approach is consistent with the
expectations of a non-complex entity under the criteria for use of this
documentation package.

Considerations Related to Authorization, Segregation of Duties, Asset Safeguarding,

and Asset Accountability

We evaluate the proper authorization of transactions, presence of proper

segregation of duties, asset safeguarding, and asset accountability in determining
the types of errors that could occur within a flow of transactions.

Proper authorization of transactions, adequate segregation of duties, asset

safeguarding, and asset accountability are important considerations in determining
if a client's control activities are effective in achieving the objectives of internal
control. These objectives relate primarily to management's control over the
disposition of the entity's assets and liabilities and only indirectly to controls over
the processing of data, which are concerned with the accurate, timely, and
complete recording of transactions. However, the absence of such controls may
increase the risk of errors of audit importance in the financial information
maintained in the client's books and records.

For example, as asset accountability procedures frequently take the form of control
account reconciliations or other detect controls, on which we might wish to place
reliance, the absence of or weakness in such procedures may affect our evaluation
of controls over those significant classes of transactions.
Therefore, we consider the absence of these controls in determining the types of
errors that could occur within a flow of transactions. We assess the extent to which
any significant weaknesses in the client's authorization, segregation of duties, asset
safeguarding, and asset accountability procedures could increase the likelihood of
errors of audit importance in account balances. We consider such characteristics as
the materiality of the assets concerned, their susceptibility to physical loss through
errors or fraud, and their susceptibility to losses in value through business risks,
errors, or fraud.

Authorization. General and specific authorization and approval levels and

procedures designed to ensure that transactions and activities are executed in
accordance with management's intentions. We need to consider the risk that
transactions are not executed in accordance with management's general or specific
authorization.

Safeguarding of assets. Restrictions, designed to prevent or detect the financial

statement implications from the loss of assets, on access to and use of assets and
records, including physical access and indirect access through the preparation and
processing of data that authorize, or otherwise facilitate, the use or disposition of
assets. We need to consider the risk that access to assets and data may be
permitted without management's authorization.

Asset accountability. Procedures to compare recorded assets with actual assets and
to effect appropriate actions when differences are identified. Such procedures help
provide assurance that authorization and safeguarding of assets procedures are
being followed. We need to consider the risk that amounts recorded for assets are
not compared with existing assets at reasonable intervals, or that appropriate
action is not taken regarding any differences.

Segregation of duties. Inadequacies in the segregation of duties exist if any

individual performs incompatible activities or if a computer application set-up
grants users inappropriate or excessive access to functionality (e.g., if an individual
is in a position to both perpetrate and conceal errors or fraud in the normal course
of performing his or her duties). Thus, we consider the risk that individuals perform
processing procedures that are incompatible with each other, or that an individual
performs the processing and/or recording of transactions procedures and related
controls, and/or recording, or has access to related assets.
Walk-Through Procedure Guidance

We perform at least one walk-through for each significant class of transactions

within significant processes, including the sub-processes of the Financial Statement
Close Process ("FSCP") and sources and preparation of information resulting in
significant disclosures.

Our walk-through includes both the manual and automated steps of the process,
including the points at which the transactions are initiated, recorded, processed,
and ultimately reported in the general ledger (or serve as the basis for disclosures).
We use the same source documents and information technology (e.g., applications,
end user computing) that client personnel typically would use.

As we perform each walk-through, we should question client personnel involved in

the significant class of transactions and sources of information about their
understanding of the client's prescribed procedures. We should determine whether
processing procedures are performed as originally understood and in a timely
manner, and we are alert for exceptions to the company's prescribed procedures.
When we encounter exceptions, we should make follow-up inquiries to determine
whether these exceptions indicate potential fraud. As we perform the walk-through,
we also consider whether those individuals performing the processing have any
conflicting duties or whether any potentially conflicting duties have been addressed.

When there have been significant changes to flows of significant classes of

transactions or sources of information, including key computer applications, we
need to evaluate the nature of the change(s) and the effect on related accounts and
disclosures and determine whether to walk-through transactions that were
processed both before and after the change(s).

Walk-Through of Significant Class of Transaction Guidance

Describe the walk-through tests performed on the flow of transactions. In doing so
ensure that the walk-through encompasses the entire flow of initiating, recording,
processing and reporting individual transactions and, to the extent necessary,
related controls. Furthermore, ensure use is made of original source documentation
and information technology that the client personnel typically would use in the flow
of transactions.