Internal Control: Communications and Reports

An auditor's communication with those charged with governance is required to include the

discussion of disagreements with management about matters that significantly affect the entity's financial statements

Which of the following matters would an auditor most likely consider to be a significant deficiency or material weakness to be communicated to those charged with governance?

evidence of a lack of objectivity by those responsible for accounting decisions

If an auditor performing an integrated audit identifies one or more material weaknesses in a nonissuer's internal control, the auditor should

express an adverse opinion on the entity's internal control

An auditor is conducting an integrated audit of internal control with the audit of a nonissuer's financial statements. In applying the top-down approach, the auditor first

focuses on entity-level controls and then significant classes of transactions, account balances, and disclosures

Which of the following most accurately describes the process of a walkthrough?

following a transaction from its origination until it is reflected in the financial statements

An auditor's communication with the board of directors most likely should

indicate that it is for the sole use of the board

A CPA's understanding of internal control in a financial statement audit of a nonissuer

is usually more limited than that made in an audit of internal control integrated with an audit of financial statements

In an integrated audit, 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?

issue an adverse opinion

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

it is less severe than a material weakness

The activities of the user entity and the service organization have a high degree of interaction. The user auditor

it should include an opinion

A service auditor's report on internal control may be issued on management's description of a service organization system and the suitability of the design of controls or management's description of a service organization system and the suitability and operating effectiveness of controls. Which of the following is true about a type 1 report?

it should state that the auditor did not test the effectiveness of the controls

In reporting on an audit of an issuer's internal control over financial reporting, an auditor should include a statement that describes the

limitations inherent to internal control

In the audit, the auditor reports on the effectiveness of an entity's internal control over financial reporting. Which of the following is not a condition of that engagement?

management provides assurance that limitations inherent to internal control have been eliminated

Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following?

management's assessment of the effectiveness of internal control over financial reporting

Which of the following circumstances would be inappropriate for the auditor to communicate to those charged with governance?

no significant deficiencies in internal control exist that would affect the financial statements

When engaged to express an opinion about the effectiveness of a nonissuer's internal control over financial reporting, the auditor should

obtain management's written representation acknowledging responsibility for establishing and maintaining internal control

An issuer who is an accelerated filer subject to the Securities Exchange Act of 1934 is required to include in its annual report an auditor's opinion on whether internal control over financial reporting was

properly designed and operated effectively

The Sarbanes-Oxley Act of 2002 (SOX) requires management of issuers to do all of the following except

provide a statement that the board approves changes in internal control procedures

When the regular audit leading to an opinion on financial statements discloses specific circumstances that create suspicion that fraud may exist, and the auditor concludes that the results of such fraud, if any, could not be so material as to affect the opinion, (s)he should

refer the matter to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion

Moor, CPA, discovers a likely fraud during an audit but concludes that its effects, if any, could not be so material as to affect the opinion. Moor most likely should

report the finding to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion

When reporting to the audit committee on conditions relating to an entity's internal control observed during an audit of a nonissuer's financial statements, the auditor should include a

restriction on the use of the report

In obtaining an understanding of an issuer's internal control, an auditor does all the following except

send confirmations to customers

Which of the following statements is true about the auditor's communication of a material weakness in internal control?

suggested corrective action for management's consideration concerning a material weakness need not be communicated to the client

During the planning phase of an audit, an auditor is identifying matters for communication to those charged with governance. The auditor most likely would ask management whether

there were charges in the application of significant accounting policies

Which of the following best describes a CPA's responsibility to report on an issuer's (public company's) internal control over financial reporting?

to examine the effectiveness of its internal control

When an auditor is to conduct an audit of a service organization, what considerations should the auditor make in the planning stages regarding internal controls of the organization?

whether management has adequately described complementary user controls

The development of constructive suggestions to a client for improvements in its internal control is a

desirable by-product of an audit engagement

Which of the following matters is an auditor required to communicate to those charged with governance?

Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process

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

An overview of the planned scope and timing of the audit

In an audit engagement, should an auditor communicate the following matters to those charged with governance?

Auditors' Judgments about the Quality of the Client's Accounting Principles - YES Issues Discussed with Management Prior to the Auditor's Retention - YES

The audit of internal control over financial reporting should test

Design effectiveness -YES Operating effectiveness - YES

An auditor has withdrawn from an audit engagement of an issuer after finding fraud that may materially affect the financial statements. The auditor should set forth the reasons and findings in communication to the

Board of directors

Which of the following matters is an auditor required to communicate to those in the entity 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

Both I. and II.

Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance?

Disagreements of the amount of LIFO inventory layer based on preliminary information

Brown, CPA, has accepted an engagement to audit the effectiveness of the internal control over financial reporting of Crow Company (a nonissuer) and to issue a report on such audit. In what form does Crow present its written assessment about effectiveness? I. In a separate report that accompanies Brown's report II. As a note to the financial statements

I. only

Which of the following issues related to internal control over financial reporting are required to be communicated in writing to management and those charged with governance? I. Deficiencies in internal control II. Significant deficiencies III. Material weaknesses

II. and III. only

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission issued a document in 1992 that has been embraced by numerous organizations, including the AICPA and the GAO. That document is titled

Internal Control- Integrated Framework

In identifying matters for communication with an entity's audit committee, an auditor most likely would ask management whether

It consulted with another CPA firm about accounting matters

In communicating with those charged with governance, the auditor must decide whether to communicate with the audit committee or the client's entire board of directors. Which of the following considerations will be least relevant to this decision?

Management's preference

A secondary result of the auditor's understanding of internal control for a nonissuer is that the understanding may

bring to the auditor's attention possible control conditions required to be communicated to the client

Which of the following is not a role of the risk assessment in an integrated audit of a nonissuer?

concluding on the effectiveness of a given control

In an integrated audit, an auditor should issue an adverse opinion on the effectiveness of an entity's internal control in which of the following situations?

a material weakness exists

Which of the following is least likely indicative of a significant deficiency or material weakness in internal control?

a potential future internal control problem having no effect on the current period

During the audit of internal controls integrated with the audit of the financial statements, the auditor discovered a material weakness in internal control. The auditor most likely will express a(n)

adverse opinion on internal control

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

all control deficiencies detected during the course of the audit

According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal control over financial reporting except

all such weaknesses must be communicated in writing to all stockholders

Which of the following best describes a CPA's engagement to report on an entity's internal control over financial reporting?

an audit engagement that results in issuance of a report relating to the effectiveness of internal control

Which of the following statements about significant deficiencies and material weaknesses in internal control is true for an audit of a nonissuer?

an auditor may communicate significant deficiencies and material weaknesses during an audit or after the audit's completion

Under the AICPA's auditing standards, which of the following statements about an auditor's communication of significant control deficiencies is true?

an auditor's report on significant control deficiencies should include a restriction on the use of the report

Each of the following statements is correct regarding the likely sources of potential misstatements in an integrated audit except

an evaluation of the entity's IT risks and controls should be performed separately from the top down approach

An issuer client who disagrees with the independent auditor on a significant matter affecting its financial statements has several courses of action. Which of the following courses of action would be inappropriate?

appeal to the FASB to review the significant matter

To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report must

attest to and report on the internal control assessment made by the management of the issuer

Which of the following groups is considered a subgroup ordinarily charged with assisting the board of directors in fulfilling its oversight responsibilities?

audit committee

An auditor expresses an unmodified opinion on internal control over financial reporting after an audit integrated with a financial statement audit. As a result, the

auditor believes that controls are effective

Which of the following is true regarding significant deficiencies and material weaknesses in control for a nonissuer?

auditors should communicate them to management and those charged with governance

Snow, CPA, was engaged by Master Co., a nonissuer, to audit the effectiveness of Master's internal control over financial reporting as part of an integrated audit. Snow's report should state that

because of inherent limitations, internal control may not prevent, or detect and correct misstatements

Which of the following statements correctly describes 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

An auditor's written communication of internal control related matters identified in an audit would be addressed to "those charged with governance," which would include the

board of directors

In an audit of internal control over financial reporting, which deficiencies in control should be communicated in writing to those charged with governance?

both material weaknesses and significant deficiencies

The auditor's report expressing an opinion on the effectiveness of an entity's internal control over financial reporting should include all the following except

that the entity's internal control is consistent with that of the prior year after giving effect to subsequent changes

During planning, an auditor of a nonissuer should communicate which of the following to those charged with governance at an entity?

the audit does not relieve management of its responsibilities for the financial statements

A report on an issuer's integrated audit must include each of the following statements, except

the audit was conducted in accordance with AICPA standards

Which of the following statements is true about an auditor's communication to those charged with governance?

the auditor is required to inform those charged with governance about misstatements discovered by the auditor and not subsequently corrected by management

Management of an issuer subject to SEC requirements requests the auditor to report on whether a previously reported material weakness in internal control continues to exist. The request comes 3 months after the annual audited financial statements and report on internal control were released.

the auditor may accept the engagement if management provides a statement that the identified material weakness no longer exists

Which of the following statements about an auditor's communication of internal control related matters identified in an audit of a nonissuer is true?

the auditor should communicate significant internal control related matters no later than 60 days after the report release date

Management may already know of the existence of significant deficiencies or material weaknesses in internal control. Which of the following is a true statement about the auditor's communication in this situation?

the auditor should communicate these control conditions in writing regardless of a decision by management and those charged with governance not to remedy them

Which of the following statements is true about significant deficiencies identified in an audit?

the auditor should identify those significant deficiencies considered to be material weaknesses

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. For an auditor of a nonissuer, this understanding generally includes

the auditor's responsibility for ensuring that management and those charged with governance are aware of any significant deficiencies of material weaknesses in control that come to the auditor's attention

Which of the following best describes the responsibility of an auditor of a private entity with respect to significant deficiencies and material weaknesses under AU-C 265, Communication of Internal Control Related Matters Identified in an Audit?

the communication by the auditor must be in writing

Which of the following is true about the auditor's communication with those charged with governance?

the communication should be a two way discourse between the auditor and those charged with governance

Which of the following statements is true about an auditor's communication with those charged with governance?

the communication should include disagreements with management about audit adjustments whether or not satisfactorily resolved

Which of the following statements is true about an auditor's communication with those charged with governance?

the communication should include management changes in the application of significant accounting policies

A CPA had previously communicated a significant control deficiency in connection with an audit of prior financial statements of a nonissuer. As of the current audit date, the deficiency has not been corrected. What communication should be made by the CPA?

the condition should be reported

Which of the following matters is an auditor not required to communicate to an entity's audit committee?

the degree of reliance the auditor placed on the management representation letter

When planning an engagement to audit the effectiveness of the entity's internal control in an integrated audit of a nonissuer, a practitioner would least likely consider which of the following factors?

the evaluation of the operating effectiveness of the controls

Which of the following is a true statement concerning an engagement to examine the effectiveness of an entity's internal control over financial reporting?

the management evaluates the effectiveness of internal control

An auditor would least likely initiate a discussion with a client's audit committee concerning

the maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated

In the integrated audit, which of the following would not be considered an entity-level control?

the outside auditor's assessment process of internal auditor competence and objectivity

Which of the following matters should an auditor communicate to those charged with governance?

the process used by management in formulating sensitive accounting estimates

When communicating significant deficiencies in internal control noted in a financial statement audit of a nonissuer, the communication should indicate that

the purpose of the audit was to report on the financial statements not to provide assurance on internal control

An auditor is auditing internal control in conjunction with the audit of financial statements for an issuer. The auditor is considering the appropriate materiality level for planning the audit of internal control. Relative to the materiality level for the audit of the financial statements, materiality levels for the audit of internal control are

the same

Which of the following representations should not be included in a written report on internal control related matters identified in an audit under the AICPA's auditing standards?

there are no significant deficiencies or material weaknesses in the design or operation of internal control