In a recent article, discussing the cost implications of Section 404 the author commented upon how one can balance the cost of 404 assessment, of the independent auditor vs inhouse auditors. The work carried out by the management has a significant effect on the independent auditors testing. Simply put, the more extensively management performs their own work, the less costly and expensive is the independent auditors effort.

Most independent auditors focus on high risk areas rather than at low risk areas. They usually rely on management testing for the low risk areas. Management should make sure at the outset itself as to what level of reliance is the independent auditor going to put on management testing. Management can also increase the objectivity of testing of lower risk areas. Similarly, the work of the internal audit department also needs to be taken into account in terms of deciding how much testing will the management undertake. All these factors mentioned above together can help the management balance out both the work and cost of 404
assessment significantly.

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