Assessment of the effectiveness of management review controls

Apr 23, 2021
Audit Financial reporting SEC matters

The Center for Audit Quality and the Financial Education & Research Foundation recently released a summary of a virtual roundtable held to identify and share leading practices that can mitigate challenges related to the assessment of the effectiveness of management review controls (MRCs). The roundtable also highlighted key findings from a recent research report, Perspectives on Management Review Controls: Challenges and Solutions.

The roundtable discussed the issues and challenges associated with the design and precision of MRCs, the operation and performance of MRCs and planning and communication of the assessment of effectiveness of MRCs. Highlights from the roundtable discussion include the following:

  • A risk assessment that documents which MRCs management believes address the highest risk elements of a particular account and why can help align the auditor’s risk assessment with that of management’s views, to the extent possible.
  • Preparers value the auditor holding detailed walkthrough meetings with management early in the audit cycle, especially with respect to new MRCs.
  • It is important for management, and the auditor, to perform a risk assessment relating to the underlying data used in the review to determine which elements of the data are the most critical to the operation of the MRC.
  • An effective method of testing the effective operation and performance of complex MRCs is auditor observation of key meetings where management engages in discussions and makes decisions that serve as primary evidence of an MRC’s performance.