A only if the deficiency is considered a material

  • DeVry University, Fremont
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a. Only if the deficiency is considered a material weakness. b . Only if the deficiency has a material effect on the auditor's assessment of control risk. c. Unless the entity accepts that degree of risk because of cost-benefit considerations. d . In writing, during the current audit. Explanation Choice "d" is correct. A previously communicated significant deficiency that has not been corrected ordinarily should be communicated again in writing, during the current audit. Choices "b" and "a" are incorrect. The auditor is required to communicate significant deficiencies each year, regardless of whether the deficiency has a material effect on the auditor's assessment of control risk or the deficiency is considered a material weakness.
Choice "c" is incorrect. The auditor is required to communicate significant deficiencies each year, even if the entity accepts that degree of risk because of cost-benefit considerations. Which of the following statements describes an auditor's obligation to identify deficiencies in the design or operation of internal control in a financial statement audit of a nonissuer?
Explanation Choice "a" is correct. The auditor need not search for significant deficiencies in internal control, but should document and communicate any such deficiencies that are discovered. Choice "b" is incorrect. Tests of controls are designed and applied to evaluate the risk of financial statement misstatement, and to determine the nature, timing, and extent of substantive tests to be performed. They are not designed to discover significant deficiencies in internal control. Choice "c" is incorrect. Searching for significant deficiencies in internal control is not part of an audit, and it would be inappropriate for the auditor to state that no significant deficiencies in internal control were noted (even if management requested such a statement).
Choice "d" is incorrect. Searching for significant deficiencies in internal control is not part of an audit even if the auditor expects that controls are operating effectively (i.e., expects to rely on controls).

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