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Area IV: Forming Conclusions and ReportingReportingInternal ControlAudit Report

CPA · Question 41 · Area IV: Forming Conclusions and Reporting

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The auditor has not been engaged to audit internal control. <br/><br/>How should the material weakness be handled in the auditor's report on the financial statements?

Answer options:

A.

It should be disclosed in an Emphasis-of-Matter paragraph.

B.

It should be disclosed in an Other-Matter paragraph.

C.

The material weakness should NOT be mentioned in the auditor's report on the financial statements.

D.

The opinion should be qualified due to the material weakness.

How to approach this question

Distinguish between Integrated Audit (Report on IC) and Financial Statement Audit (No Report on IC). If you aren't reporting on IC, don't talk about IC in the report.

Full Answer

C.The material weakness should NOT be mentioned in the auditor's report on the financial statements.✓ Correct
The material weakness should NOT be mentioned in the auditor's report on the financial statements.
In a financial statement audit of a nonissuer (not integrated), the auditor is not expressing an opinion on internal control. Therefore, the auditor should not mention material weaknesses in the audit report, as it could be misunderstood as an adverse opinion on the financial statements or internal control.

Common mistakes

Confusing Integrated Audit rules with FS Audit rules.
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