A9 Communication with Mgmt

Question 1

Material Weaknesses

Answer 1

The result of a deficiency or a combination of deficiencies in internal. These create a reasonable possibility that a MM of the entity’s FS will not be prevented or detected & corrected on a timely basis. All material weaknesses are significant deficiencies.

Question 2

Significant Deficiencies

Answer 2

A deficiency or a combination such in internal control over financial reporting that is less severe than a material weakness. Not all significant deficiencies are material weaknesses

Question 3

Those Charged With Governance

Answer 3

Refers to those who bear responsibility to oversee the obligations & strategic direction of an entity. This is usually the BOD or audit committee.

Question 4

Deficiency

Answer 4

A deficiency in design occurs when a necessary control is missing or when an existing control does not achieve the desired objective.

A deficiency in operation occurs when a properly designed control does not operate as designed or is performed by an inappropriate person.

Question 5

Deficiency Categorization

Answer 5

From least to worst includes control deficiency, significant deficiency, and material weakness.

Question 6

Control Deficiency

Answer 6

Exists when the design or operation of a control does not allow mgmt or employees in the normal course of business to prevent or detect and correct misstatements on a timely basis.

Question 7

Objective of Communication

Answer 7

The main objective of communication is to ensure mgmt and those charged with governance are informed about the auditor’s approach to the engagement, to discuss significant findings, and to provide additional insight relevant to the auditor or timely observations relevant to FS reporting.

Question 8

Overview of Planned Scope

Answer 8

An overview of the planned scope is also communicated that includes audit areas, audit nature, & audit timing.

Question 9

Indicators of Material Weaknesses in Internal Control over Financial Reporting

Answer 9

Identification of any level of fraud perpetrated by senior mgmt

Restatement of previously issued FS to correct a material misstatement

A material misstatement that would not have been detected by the entity’s system of internal control

Ineffective oversight by those charged with governance

Question 10

Evaluation of Control Deficiencies

Answer 10

The auditor must evaluate control deficiencies to determine whether they represent significant deficiencies or material weaknesses. These depend on the actual misstatement and the potential misstatement involving its likelihood and magnitude.