Required Communications related to control Deficiencies

Question 1

When is the auditor required to communicate internal control issues with a client?

Answer 1

1) . material weakness
2) Significant deficiencies

• Either in the design or operations of internal controls
• Your goal is not to seek out these deficiencies

May choose to communicate lesser problems

Question 2

Define significant deficiency?

Answer 2

Deficiency in internal control that less severe than material weakness but significant enough to merit attention with those in charge of governance

Question 3

Define material weakness?

Answer 3

Internal control deficiency such that there is a reasonable possibility that a material misstatement of the entities F/S will not be prevented or detected

Question 4

How do you determine the classification of a significant deficiency or material weakness?

Answer 4

Consider the likelihood and potential magnitude of the F/S effect in making that evaluation

Question 5

What is the form of communication on a significant deficiency or material weakness?

Answer 5

WRITING- to those in charge with governance (including such matters communicated verbally earlier in the audit)

Question 6

T/F: The auditor has to communicate lesser matters of internal control issues?

Answer 6

False- they don’t have to but have the option. This can be done either in writing or oral.

If you do have the conversation, you need to document that such conversations took place.

Question 7

Internal control deficiencies (significant and material), what is the timing rules?

Answer 7

60 days following the report release date.

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 (sooner is preferable)

Question 8

The auditor should restrict distribution of any such report to the specified users if there are control deficiencies (significant and material)

Answer 8

True