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Answer b is incorrect because the auditor must gain

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Answer (B) is incorrect because the auditor must gain an understanding of the five components ofinternal control.Answer (C) is incorrect because obtaining the understanding includes determining whetherrelevant policies and procedures have been placed in operation.Answer (D) is incorrect because the understanding includes knowledge about the design ofrelevant policies, procedures, and records.[670]
A previously communicated reportable condition that has not been corrected ordinarily should becommunicated again ifA. The deficiency has a material effect on the auditor's assessment of control risk.B. The entity accepts that degree of risk because of cost-benefit considerations.C. The weakness could adversely affect the entity's ability to report financial data.D. There has been major turnover in upper-level management and the board of directors.Answer (A) is incorrect because, if the audit committee has acknowledged its understanding andconsideration of the risks, the auditor may decide not to report the matter despite its adverseeffects.Answer (B) is incorrect because, if the audit committee has acknowledged its understanding andconsideration of the risks, the auditor may decide not to report the matter despite its adverseeffects.Answer (C) is incorrect because, if the audit committee has acknowledged its understanding andconsideration of the risks, the auditor may decide not to report the matter despite its adverseeffects.Answer (D) iscorrect. AU 325 requires communication about reportable conditions and makes noexception solely for previous reporting of a condition. But "provided the audit committee hasacknowledged its understanding and consideration of such deficiencies and the associated risks,the auditor may decide the matter does not need to be reported." However, the auditor shouldperiodically consider whether the passage of time or changes in management or the auditcommittee make reporting such matters appropriate.[671]Which of the following statements is correct concerning an auditor's required communication ofreportable conditions?A. A reportable condition previously communicated during the prior year's audit that remainsuncorrected causes a scope limitation.B. An auditor should perform tests of controls on reportable conditions before communicating themto the client.C. An auditor's report on reportable conditions should include a restriction on the distribution of thereport.D. An auditor should communicate reportable conditions after tests of controls, but beforecommencing substantive tests.Answer (A) is incorrect because, although a reportable condition previously communicated mayrequire continued communication in the following year, it does not necessarily cause a scopelimitation in the audit.

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