Gail is auditing the financial statements of Hoefener Home Improvements, a publicly held company. Gail notes several deficiencies in internal control, and is trying to determine whether each deficiency constitutes a significant deficiency or a material weakness. Which best describes the framework Gail should use in making this evaluation?

Question

Quizplus · Accepted Answer

Choice "A" is correct. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement. Choice "B" is incorrect. For nonissuers, a significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement. However, Hoefener is an issuer, so different rules apply. Choice "C" is incorrect. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting. Choice "D" is incorrect. For issuers, a material weakness exists when there is a reasonable possibility of material misstatement.

Gail Is Auditing the Financial Statements of Hoefener Home Improvements