ExpertHard1 markMultiple Choice
CPA · Question 41 · Area I: Ethics & General Principles
During the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is correct regarding the reporting of this material weakness?
During the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is correct regarding the reporting of this material weakness?
Answer options:
A.
It must be disclosed in an emphasis-of-matter paragraph in the audit report.
B.
It must be communicated in writing to management and those charged with governance, but it is NOT disclosed in the audit report on financial statements.
C.
It requires the auditor to issue an adverse opinion on the financial statements.
D.
It must be reported to the SEC within 4 business days.
How to approach this question
Distinguish: Integrated Audit (Opinion on IC = Adverse if MW) vs. FS Audit Only (No opinion on IC, just private letter).
Full Answer
B.It must be communicated in writing to management and those charged with governance, but it is NOT disclosed in the audit report on financial statements.✓ Correct
It must be communicated in writing to management and those charged with governance, but it is NOT disclosed in the audit report on financial statements.
In a financial statement audit of a nonissuer (not an integrated audit), material weaknesses are communicated internally (Management Letter) but do not appear in the external audit report.
Common mistakes
Confusing Integrated Audit reporting with FS Audit reporting.
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