9. Internal Control Communications and Reports

Question 1

What opinion does a material misstatement require?

Answer 1

An adverse opinion on the effectiveness of internal control.

Question 2

What should the auditor communicate to those charged with governance?

Answer 2

Significant deficiencies and material weaknesses, NOT all control deficiencies

Question 3

When is the evaluation of the operating effectivness of the controls made?

Answer 3

When the auditor forms an opinion by considering the evidence obtained from all sources, including (1) tests of controls, (2) misstatements detected during the audit, and (3) identified deficiencies.

Question 4

What can service auditors report on?

Answer 4

Service auditors may report (1) on the fairness of management’s description of the controls and whether the controls have been implemented and are suitably designed (type 1 report) or (2) additionally on operating effectiveness (type 2 report). The type 1 report should include a disclaimer of opinion related to operating effectiveness of the controls.

Question 5

AU-C 240

Answer 5

The auditor should also be satisfied that, in view of the organizational position of the likely perpetrator, the fraud has no implications for other aspects of the audit or that those implications have been adequately considered.

Question 6

During planning, what should be communicated to an nonissuer by the auditor?

Answer 6

That the auditor does not relieve management of its responsibilities for the financial statements

Question 7

According to PCAOB AS 2201,

Answer 7

The auditor must express (or disclaim) an opinion on the effectiveness of internal control.