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cpa audit review ch9 review 5

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

    A.An auditor should perform tests of controls on significant control deficiencies before communicating them to the client.

    B.A significant control deficiency previously communicated during the prior year’s audit that remains uncorrected causes a scope limitation.

    C.An auditor should communicate significant control deficiencies after tests of controls, but before commencing substantive tests.

    D.An auditor’s report on significant control deficiencies should include a restriction on the use of the report.
    D.An auditor’s report on significant control deficiencies should include a restriction on the use of the report.

    A communication of significant control deficiencies should (1) state that the purpose of the audit was to report on the financial statements, not to provide assurance on internal control; (2) give the definition of significant control deficiencies and material weaknesses; and (3) state that the report is intended solely for the information and use of those charged with governance, management, and others within the organization (or specified regulatory agency) and is not intended to be, and should not be, used by anyone other than the specified parties.
  2. Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following?

    A.Representations from the company’s external auditors that the company has effective internal control over operations.

    B.Management representations that the company’s external auditors have examined its internal control over compliance with laws and regulations.

    C.Management’s assessment of the effectiveness of internal control over financial reporting.

    D.Reasonable assurances that fraud will be identified before the issuance of the company’s annual report.
    C.Management’s assessment of the effectiveness of internal control over financial reporting.

    Every public company (an issuer) must include in its annual report management’s assessment of the design and effectiveness of internal control over financial reporting. An accelerated filer (a company with market equity of at least $75 million) also must annually obtain an auditor’s report on internal control over financial reporting.
  3. Which of the following circumstances would be inappropriate for the auditor to communicate to those charged with governance?

    A.The auditor is requesting representations regarding the financial statements from management.

    B.A material misstatement was noted by the auditor and corrected by management.

    C.Management has consulted with other accountants about accounting and auditing matters during the period under audit.

    D.No significant deficiencies in internal control exist that would affect the financial statements.
    D.No significant deficiencies in internal control exist that would affect the financial statements.

    An auditor may issue a written communication stating that no material weaknesses were identified if the auditor complies with the applicable requirements for such communications. But a written communication stating that no significant deficiencies were identified is prohibited. It might be misunderstood or misused (AU-C 265).
  4. An auditor’s report on an examination of internal control over financial reporting is least likely to be issued as a result of

    A.A review of the annual financial statements of a large corporation.

    B.A request to apply agreed-upon procedures relating to the effectiveness of an entity’s internal control.

    C.A request by management to report on internal control effectiveness.

    D.An engagement to examine the effectiveness of an entity’s internal control based on criteria established by a regulatory body.
    A.A review of the annual financial statements of a large corporation.Answer (A) is correct. Auditors are engaged to audit and express an opinion on, rather than review, the annual statements of large corporations (issuers). A review is appropriate for nonissuers that seek a report expressing only limited assurance on financial statements, not internal control.
  5. Which of the following best describes a CPA’s responsibility to report on an issuer’s (public company’s) internal control over financial reporting?

    A.To identify and communicate control deficiencies to the board of directors.

    B.To examine the effectiveness of its internal control.

    C.To provide constructive advice to the entity on its internal control.

    D.To report on the expected benefits of the entity’s internal control.
    B.To examine the effectiveness of its internal control.

    The auditor’s objective is to express an opinion on whether internal control is effective, in all material respects, based on the control criteria.
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Joens1313
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cpa audit review ch9 review 5
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cpa audit review ch9 review 5
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