3.14 - I/C REPORTS AND COMMUNICATION, ATTESTATION ENGAGEMENT Flashcards
3.14 - I/C REPORTS AND COMMUNICATION, ATTESTATION ENGAGEMENT
An accountant’s report expressing an unqualified
opinion on an entity’s system of internal accounting control
should contain a
A) Statement that the distribution of the accountant’s report is limited to the entity’s management and its
board of directors.
B) Description of the difference between the expression of an opinion on the system and the assessment of control risk made as part of an audit.
C) Statement that the establishment and maintenance of the system is the responsibility of management.
Description of the control deficiencies that may permit errors or irregularities to occur and not be detected.
C) Statement that the establishment and maintenance of the system is the responsibility of management.
A report on internal control will include acknowledgement of…
- management’s responsibility for internal control;
- a description of what aspects of the system of internal control were examined;
- the criteria used for performing the evaluation;
management’s assertion regarding the effectiveness of the entity’s internal controls; - a description of any material weaknesses;
and the date of the assertion.
3.14 - I/C REPORTS AND COMMUNICATION, ATTESTATION ENGAGEMENT
At the conclusion of an attestation engagement to examine internal control, the auditor communicates, in writing and separate from the official report on internal control, certain matters to management and those charged with governance. This communication includes the following:
I. Any material weaknesses.
II. Any significant
deficiencies.
III. Internal control deciencies
that are neither material weaknesses nor signicant
deficiencies.
A) None of the above
B) I, II, and III
C) I and II only
D) I only
C) I and II only
In accordance with AT 501, at the conclusion of an attestation engagement to examine internal controls the CPA will communicate certain matters to management and those charged with governance.
Written communication of material weaknesses and significant deficiencies must be made directly to both management and those charged with governance.
Written communication of internal control deficiencies that are neither material weaknesses nor significant deficiencies must be made
directly to management, but not directly to those charged with governance – the CPA need only inform those charged with governance that such a communication has been made to management.
3.14 - I/C REPORTS AND COMMUNICATION, ATTESTATION ENGAGEMENT
Which of the following is true regarding separate attestation engagements to examine internal control of nonissuers?
A) A material misstatement always occurs as a result of a material weakness in internal control; therefore, this service may only be performed as part of an integrated audit.
B) The auditor is not required to search for internal control deficiencies that are not material weaknesses.
C) The auditor uses a bottom-up approach by first
observing and testing the operation of controls.
D) Such an engagement must be part of an integrated audit.
B) The auditor is not required to search for internal control deficiencies that are not material weaknesses.
The purpose of an attestation engagement to examine the internal control of a non-issuer is to enable the auditor to
form an opinion on the effectiveness of internal control.
Since internal control is not considered effective when one or more material weaknesses exists, the engagement will be designed to detect material weaknesses. It will not be designed, however, to detect deficiencies that are not material weaknesses.
An examination of internal controls of a non-issuer may be performed as
either a standalone service or as part of an integrated audit.
A material weakness represents the reasonable possibility that a material misstatement may occur but is not necessarily an indication that one did occur.
When performing an examination of
internal control, the auditor will use a top down approach, beginning with the control environment before addressing risk
assessment or control activities.
3.14 - I/C REPORTS AND COMMUNICATION, ATTESTATION ENGAGEMENT
In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the date
specified in management’s assertion, the auditor should take which of the following actions?
A) Disclaim an opinion
B) Communicate, in writing, to the entity’s outside legal counsel that the material weakness exists.
C) Obtain written representations from management relating to such matters.
D) Issue an adverse opinion.
C) Obtain written representations from management relating to such matters.
A material weakness indicates at least a reasonable possibility that controls will neither prevent a material misstatement nor detect and correct it on a timely basis.
As a result, the existence of a material weakness indicates that internal
control is not effective and the auditor will issue an adverse opinion in the report on the effectiveness of internal control in an
integrated audit of a nonissuer.
The auditor obtains written representations from management in all such engagements.
Communication with outside legal counsel would violate ethical rules related to confidentiality
