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Area IV: Forming Conclusions and ReportingReportingIntegrated AuditInternal Control

CPA · Question 11 · Area IV: Forming Conclusions and Reporting

An auditor is performing an integrated audit of an issuer. The auditor identifies a material weakness in internal control over financial reporting (ICFR). Management corrects the material weakness two months before year-end. The auditor tests the corrected control and finds it operating effectively. Which of the following is the auditor's MOST appropriate course of action regarding the opinion on ICFR?

Answer options:

A.

Issue an adverse opinion because the material weakness existed during the year.

B.

Issue an unqualified opinion, provided the auditor determines the new control has operated for a sufficient period of time to demonstrate effectiveness.

C.

Issue a disclaimer of opinion because the control system changed significantly during the year.

D.

Issue an unqualified opinion with an explanatory paragraph describing the remediation.

How to approach this question

Key concept: ICFR opinions are 'point-in-time' (as of year-end). If it's fixed and tested *sufficiently* by that date, the opinion is clean.

Full Answer

B.Issue an unqualified opinion, provided the auditor determines the new control has operated for a sufficient period of time to demonstrate effectiveness.✓ Correct
PCAOB AS 2201 states that if a material weakness is remediated and the auditor obtains sufficient evidence that the new control is operating effectively *as of the balance sheet date*, the auditor can issue an unqualified opinion. The key is the 'sufficient period' of testing.

Common mistakes

Thinking existence of a weakness *at any point* in the year requires an adverse opinion (that's only if it exists *at year-end*).
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