Question 1

An audit firm has been engaged to report on whether a material weakness that previously resulted in an adverse opinion on internal control has been remediated.Which of the following statements is correct?

Accepted Answer

According to the PCAOB standards, only the auditor who issued the adverse opinion on internal control can perform the follow-up engagement to report on the remediation of the material weakness. Therefore, if there has been an auditor change, the successor auditor cannot issue such a report. Option A is incorrect as a scope limitation may result in a qualified opinion or a disclaimer of opinion, depending on its materiality. Option C is incorrect as the scope of the engagement is limited to reporting on the remediation of the previously identified material weakness, and any new deficiencies identified will not result in an adverse opinion on the current engagement. Option D is incorrect as the follow-up engagement can take place at any time during the year and does not have to coincide with the year-end audit of internal control.

Question 2

The existence of a material weakness led to an adverse opinion in the internal control audit report of a publicly traded company.Which of the following statements is correct if management believes that it has remediated the weakness?

Accepted Answer

Management may engage the auditors to report on whether the material weakness continues to exist prior to its next annual audit, but it is not required. If the weakness has been remediated, the auditors may be engaged to issue a new audit report indicating that the weakness no longer exists. However, this does not necessarily mean that the prior adverse opinion will be modified to an unqualified report.

Question 3

The PCAOB has outlined a number of circumstances that are indicators of a material weakness.In addition,other control deficiencies may or may not be a material weakness depending upon details of the circumstances involved.Categorize the following: \[\begin{array} { | l | l | l | l | } 
\hline & \begin{array} { c } 
\text { Strong } \
\text { indicator of a } \
\text { material } \
\text { weakness in } \
\text { internal } \
\text { control }
\end{array} & \begin{array} { c } 
\text { Other } \
\text { control } \
\text { deficiency } *
\end{array} & \begin{array} { c } 
\text { Neither of } \
\text { preceding } \
\text { 2 columns }
\end{array} \
\hline \begin{array} { l } 
\text { a. Ineffective oversight of external } \
\text { reporting by the audit committee. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { b. Restatement of previously issued } \
\text { financial statements to reflect the } \
\text { correction of a material misstatement. }
\end{array} & & & \
\hline \text { c. Lack of effective antifraud programs. } & & & \
\hline \begin{array} { l } 
\text { d. Lack of effective controls over the } \
\text { period-end financial reporting process. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { e. A deviation identified during tests of } \
\text { controls. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { f. Identification of material fraud on the } \
\text { part of senior management. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { g. } \text { Identification by the auditors of a } \
\text { material misstatement in circumstances } \
\text { that indicate that the client's internal } \
\text { control would not have detected it. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { h. A chief internal auditor who reports } \
\text { directly to the audit committee. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { i. Identification of immaterial fraud on } \
\text { the part of senior management. }
\end{array} & & & \
\hline \begin{array} { l } 
\text { j. Ineffective oversight of internal } \
\text { control by the audit committee. }
\end{array} & & & \
\hline
\end{array}\] *May be material weakness,significant deficiency,or lesser deficiency,but is not ordinarily considered a strong indicator of a material weakness in internal control.

Accepted Answer

The answer of The PCAOB has outlined a number of...

Quiz 18: Integrated Audits of Public Companies

An audit firm has been engaged to report on whether a material weakness that previously resulted in an adverse opinion on internal control has been remediated.Which of the following statements is correct?

The existence of a material weakness led to an adverse opinion in the internal control audit report of a publicly traded company.Which of the following statements is correct if management believes that it has remediated the weakness?