Scenario: During the audit of a nonissuer, the auditor identifies a material misstatement in the financial statements. Management corrects the misstatement. The auditor concludes that the misstatement was an isolated error and not indicative of a material weakness in internal control. <br/><br/>Does the auditor need to communicate this to those charged with governance?

Answer options:

No, because the misstatement was corrected.

No, because it was not a material weakness.

Yes, the auditor must communicate material, corrected misstatements.

Yes, but only if the misstatement involved fraud.

How to approach this question

AU-C 260. Governance needs to know: 'Hey, the books were wrong, but we fixed them.' Why? Because it shows the internal controls failed to prevent it.

Full Answer

C.Yes, the auditor must communicate material, corrected misstatements.✓ Correct

The auditor is required to communicate to those charged with governance regarding material, corrected misstatements that were brought to the attention of management as a result of audit procedures. This helps governance oversee the financial reporting process.

Common mistakes

Thinking corrected errors don't matter.

Question 26 All questions Question 28

Practice the full CPA AUD Practice Exam 3

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is performing an audit of a nonissuer in accordance with GAO Government Auditing Stand...Hard Q02During the audit of an issuer, the engagement partner learns that the firm's tax partner, who pro...Hard Q03An auditor is planning an audit of a nonissuer's financial statements. The auditor decides to use...Medium Q04An auditor is assessing control risk for a nonissuer's revenue cycle. The auditor identifies that...Hard Q05During the audit of a manufacturing company's inventory, the auditor utilizes a variables samplin...Hard

View all 78 questions →