ExpertHard1 markMultiple Choice
CPA · Question 44 · Area IV: Forming Conclusions and Reporting
An auditor is performing an audit of an issuer. The auditor identifies a material weakness in internal control. The client remediates the weakness one month before year-end. The auditor tests the remediated control and finds it effective. What is the appropriate reporting conclusion?
An auditor is performing an audit of an issuer. The auditor identifies a material weakness in internal control. The client remediates the weakness one month before year-end. The auditor tests the remediated control and finds it effective. What is the appropriate reporting conclusion?
Answer options:
A.
Unqualified opinion on ICFR because the control was effective at year-end.
B.
Adverse opinion on ICFR because the remediated control has not operated for a sufficient period of time to support a conclusion of effectiveness.
C.
Qualified opinion on ICFR.
D.
Disclaimer of opinion on ICFR.
How to approach this question
Remediation Rule: Fixing it isn't enough. You have to prove it works for a 'sufficient period'. Late fixes = Adverse Opinion.
Full Answer
B.Adverse opinion on ICFR because the remediated control has not operated for a sufficient period of time to support a conclusion of effectiveness.✓ Correct
B
Under PCAOB AS 2201, for a remediated control to be considered effective, it must operate for a sufficient period of time to permit the auditor to obtain sufficient evidence. If the remediation occurs too close to year-end (like 1 month for a significant control), the auditor cannot conclude it is effective, and the material weakness remains for reporting purposes.
Common mistakes
Thinking 'It's fixed, so it's fine'. The timing matters.
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