3.13 - I/C REPORTS AND COMMUNICATION - FINANCIAL STATEMENT AUDIT Flashcards
3.13 - I/C REPORTS AND COMMUNICATION - FINANCIAL STATEMENT AUDIT
Which of the following must be included in the written communication of signicant
deficiencies and material
weaknesses in internal control identified in an audit of financial statements of a non-issuer company?
I. Limited use statement.
II. A statement that part of the purpose of an audit is to express an opinion on the effectiveness of internal
control.
III. A statement that no material weaknesses or significant deficiencies
were identified, if this is the case.
A) I, II, and III
B) None of the above
C) I and III only
D) I only
D) I. Limited use statement.
Written communication of significant deficiencies and material weaknesses in internal control is designed for those responsible for governance and, sometimes, management.
It is not designed for third parties and the report will indicate such a limitation on the use of the statement.
The purpose of an audit is to express an opinion on the financial statements, not internal control, and the report would not state otherwise.
An auditor’s report on internal control may indicate a lack of material weaknesses since, due to their magnitude, it is considered the auditor’s responsibility to be able to identify them, similarly to a
material misstatement to the financial statements.
It would not, however, indicate a lack of significant deficiencies as it is more
likely that they may exist and go undetected.
3.13 - I/C REPORTS AND COMMUNICATION - FINANCIAL STATEMENT AUDIT
Which of the following statements is correct concerning an auditor’s required communication of internal control
related matters?
A) An auditor should communicate significant
deficiencies and material weaknesses after tests of controls, but before commencing substantive tests.
B) An uncorrected significant
deficiency or material weakness previously communicated during the prior year’s audit causes a scope limitation.
C) An auditor should perform tests of controls on significant
deficiencies and material weaknesses before
communicating them to the client.
D) An auditor’s report on internal control matters should include a restriction on the distribution of the
report
D) An auditor’s report on internal control matters should include a restriction on the distribution of the
report
The distribution of a report on internal controls in conjunction with an audit is restricted to management, the audit committee, and the board of directors.
An uncorrected deficiency does not necessarily cause a scope limitation as long as the
auditor can perform substantive tests.
The auditor is required to understand the entity’s internal controls but is not required to test
them.
Communication of internal control related matters is appropriate before, after or during the audit, although a written communication identifying all significant deficiencies and material weaknesses is generally provided to governance shortly after the conclusion of the audit engagement.
