An auditor is performing an integrated audit of an issuer. The auditor identifies a control deficiency: the person who authorizes purchases also has the ability to enter new vendors into the master file. No material misstatements were found in the financial statement audit. How should the auditor classify this deficiency?

Answer options:

It is a significant deficiency only.

It depends on the potential magnitude of the misstatement and the likelihood of occurrence.

It is not a deficiency because no misstatements were found.

It is automatically a material weakness.

How to approach this question

Deficiency Classification Rule: It's not about what DID happen, it's about what COULD happen. Magnitude + Likelihood.

Full Answer

B.It depends on the potential magnitude of the misstatement and the likelihood of occurrence.✓ Correct

The severity of a deficiency depends on (1) the magnitude of the potential misstatement and (2) the reasonable possibility (likelihood) that the control will fail to prevent/detect it. The absence of actual errors does not mean the control is effective.

Common mistakes

Assuming that 'No errors found' = 'No deficiency'.

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