An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the financial statements. Management corrects the misstatement. What is the effect on the auditor's assessment of internal control?

Answer options:

No effect, since the misstatement was corrected.

The auditor should consider whether the misstatement indicates a significant deficiency or material weakness in internal control.

The auditor must issue an adverse opinion on the financial statements.

The auditor should withdraw from the engagement.

How to approach this question

Auditor finds error -> Client fixes error -> Financials are Good (Unmodified). BUT -> Controls are Bad (Why didn't they find it?). Evaluate Deficiency.

Full Answer

B.The auditor should consider whether the misstatement indicates a significant deficiency or material weakness in internal control.✓ Correct

The identification of a material misstatement by the auditor that was not identified by the entity's internal control is a strong indicator of a material weakness in internal control.

Common mistakes

Thinking that correcting the error fixes the control problem. It fixes the number, not the process.

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