Internal Controls Communications and Reports Flashcards
What should the auditor do if they suspect that fraud may exist, and concludes that the results of such fraud, if any, would be immaterial in affecting their opinion?
Refer the matter to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion
i.e. The auditor is NOT required to pursue immaterial errors or fraud.
What are some matters that an auditor is required to communicate to those charged with governance?
I. Disagreements with management about matters significant to the entity’s financial statements that have been satisfactorily resolved
II. Initial selection of significant accounting policies in emerging areas that lack authoritative guidance
What should an auditor do if they have identified one or more material weaknesses in a nonissuer’s internal controls while performing an integrated audit?
Express an ADVERSE opinion on the entity’s internal control
True or False.
Suggested corrective action for management’s consideration concerning a material weakness needs to be communicated to the client.
FALSE.
Suggested corrective action for management’s consideration concerning a material weakness need NOT be communicated to the client.
When should the auditor communicate material weaknesses and significant deficiencies to management and those charged with governance?
Prior to the report release date
i.e. The auditor should communicate this to management and those charged with governance in writing
What is a Material weakness?
A significant control deficiency that results in more than a remote chance that a material misstatement will result in the financial statements.
i.e. this requires the auditor to express an adverse opinion on the effectiveness of internal control.
What procedure should a user auditor include in the audit plan to create the most efficient audit when an audit client uses a service organization for several processes?
Review the service auditor’s Type 1 report
What communication should be made by the CPA about a previously communicated significant control deficiency that management has not corrected?
The condition should be reported
i.e. This involves a written communication referring to the previously written communication and the date of that communication.
What does an audit of internal control over financial reporting (ICFR) test?
I. Design Effectiveness
II. Operating Effectiveness
What is a difference between a Type 1 and Type 2 report?
A type 2 report states whether the controls described by management operated effectively
What would the development of constructive suggestions to a client for improvements in its internal control be considered?
A desirable by-product of an audit engagement
What is the allotted time frame an auditor has to communicate significant internal control related matters?
60 Days
i.e. Timely communication of significant deficiencies or material weaknesses should be made no later than 60 days after the report release date.
What should the auditor do if management includes their report in its annual report to the board of directors with a statement that the cost of correcting identified material weaknesses would exceed the benefits?
Disclaim an opinion as to management’s cost-benefit statement
What would a secondary result of the auditor’s understanding of internal control for a nonissuer help the auditor do?
Bring to the auditor’s attention possible control conditions required to be communicated to the client.
What would be considered a statement used to describe the “top-down approach” used during an audit of internal control over financial reporting?
Begin by understanding the overall risks to internal control over financial reporting at the financial statement level.
