Required Communications

Question 1

Communication of internal control matters identified in an audit

Answer 1

Basic responsibility- the auditor must communicate any identified material weaknesses and significant deficiencies either in the design or operation of internal control

Question 2

Significant Deficiency

Answer 2

A deficiency (or combination of deficiencies) in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Question 3

Material Weakness:

Answer 3

A deficiency (or combination of deficiencies) in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

Question 4

Form of communication

Answer 4

Identified significant deficiencies and material weaknesses must be communicated in writing to management and those charged with governance. Certain matters may not be communicated to management when communication would be inappropriate (e.g., matters that raise questions about management integrity or competence). Lesser matters (not significant deficiencies) may be communicated to the appropriate level of operational management with the authority to take remedial action. Such lesser matters may be communicated either orally or in writing.

Question 5

Timing

Answer 5

The required communication is best made by the “report release date” and should be made no later than 60 days following the report release date. The “report release date” is the date that the auditor grants the entity permission to use the auditor’s report in connection with the audited financial statements.

Question 6

Which of the following representations should not be included in a report on internal control related matters noted in an audit?

Answer 6

An auditor is not allowed to issue a report indicating that no significant deficiencies were found. Such a report might be misinterpreted.

Question 7

A letter issued regarding significant deficiencies relating to an entity’s internal control observed during an audit of financial statements should include a

Answer 7

Letters on significant deficiencies are restricted as to distribution.

Question 8

To what degree, if at all, is a significant deficiency related to a material weakness?

Answer 8

The definition of a significant deficiency states that a significant deficiency is less severe than a material weakness.

Question 9

The auditor is required to communicate each of the following items to those charged with governance except

Answer 9

All control deficiencies detected during the course of the audit

Question 10

Which of the following matters in a financial statement audit is most appropriate to communicate with those charged with governance?

Answer 10

An overview of the planned scope and timing of the audit

Question 11

The auditor’s report on significant deficiencies should indicate that the purpose of the audit was to report on the financial statements and not to provide assurance on the

Answer 11

internal control structure