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Unformatted text preview: 7-2“Likelihood” refers to the probability that a misstatement will not be prevented or detected. For a significant deficiency or a material weakness to exist, the likelihood of such an occurrence must be either “reasonably possible” or “probable.”“Magnitude” refers to the significance that the control deficiency could have on the financial statements according to the judgment of a prudent official who considers the possibility of further, undetected, misstatements. If the auditor’s likelihood assessment is “reasonably possible” and if the magnitude of the deficiency is assessed as “significant,” then either a significant deficiency or material weakness exists depending on the magnitude of the potential effects of the deficiency on the entity’s financial statements7-8Walkthroughs help the auditor to confirm his or her understanding of control design and transaction process flow, to determine whether all points at which misstatements could occur have been identified, to evaluate the effectiveness of the design of controls, and to confirm...
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This note was uploaded on 12/19/2009 for the course ACCT 3222 taught by Professor Delaune,l during the Spring '08 term at LSU.
- Spring '08