For each of the following independent situations relating to theaudit of ICFR, indicate the reason for and the type of audit reportyou would issue.
a. During the audit of Wood Pharmaceuticals, you are surprised tofind several control deficiencies in the entity's internal control.You determine that there is a reasonable possibility that any oneof them could result in a misstatement that is significant.Although the odds are extremely low that the deficiencies, singlyor taken together, will result in a material misstatement of theentity's financial statements, the large number of problems causesyou concern. Management's written assessment concludes that theentity's ICFR was effective as of the report date.
b. You agreed to perform an audit for Rodriguez & Co., afterthe entity's year- end. Due to time constraints, your audit firmcould not complete a full audit of ICFR. However, the evidence youdid collect suggests that the entity has exceptionally strong ICFR.You seriously doubt that a material weakness would have been foundif time had permitted a more thorough audit. Management's writtenassessment concludes that the entity's ICFR was effective as of thereport date.
c. George & Diana Company's internal audit function identifieda material weakness in the entity's ICFR. The entity corrected thisweakness about four months prior to the end of the annual reportingperiod. Management reassessed controls in the area and found themeffective. After reevaluating and retesting the relevant controls,you believe the controls to have been effective for a sufficientperiod of time to provide adequate evidence that they were designedand operating effectively as of the end of the entity's reportingperiod. Management's written assessment concludes that the entity'sinternal control was effective as of the report date.
d. Reynolds Distilleries identified what you agree is a materialweakness and made an adverse assessment in its report on ICFR. Theentity had not corrected the material weakness as of the end of thereporting period.
e. Cindy & David Company's management identified a materialweakness in the entity's ICFR during its assessment process. Theentity corrected this weakness about a month prior to the end ofthe annual reporting period. Management reassessed controls in thearea and believes they were effective as of the end of thereporting period. After reevaluating and retesting the relevantcontrols, you agree that the new controls are well designed, butsince the controls over this particular area are applied only onceat the end of each month (i. e., the controls have only operatedtwo times since being corrected), you do not believe you havesufficient audit evidence to assess their operating effectiveness.Management's written assessment concludes that the entity'sinternal control was effective as of the report date.
f. During the audit of ICFR for Big Al & Larry Industries, youdiscover several control deficiencies. You determine that there ismore than a reasonable possibility that any one of them couldresult in a financial statement misstatement. Although you do notbelieve that any of the deficiencies taken individually will resultin a material misstatement, you believe there is a moderately lowlikelihood that, taken together, the deficiencies could produce amaterial misstatement. Management's written assessment concludesthat the entity's internal control was effective as of the reportdate
For each of the following independent situations relating to theaudit of ICFR, indicate the reason for and the type of audit reportyou would issue.
a. During the audit of Wood Pharmaceuticals, you are surprised tofind several control deficiencies in the entity's internal control.You determine that there is a reasonable possibility that any oneof them could result in a misstatement that is significant.Although the odds are extremely low that the deficiencies, singlyor taken together, will result in a material misstatement of theentity's financial statements, the large number of problems causesyou concern. Management's written assessment concludes that theentity's ICFR was effective as of the report date.
b. You agreed to perform an audit for Rodriguez & Co., afterthe entity's year- end. Due to time constraints, your audit firmcould not complete a full audit of ICFR. However, the evidence youdid collect suggests that the entity has exceptionally strong ICFR.You seriously doubt that a material weakness would have been foundif time had permitted a more thorough audit. Management's writtenassessment concludes that the entity's ICFR was effective as of thereport date.
c. George & Diana Company's internal audit function identifieda material weakness in the entity's ICFR. The entity corrected thisweakness about four months prior to the end of the annual reportingperiod. Management reassessed controls in the area and found themeffective. After reevaluating and retesting the relevant controls,you believe the controls to have been effective for a sufficientperiod of time to provide adequate evidence that they were designedand operating effectively as of the end of the entity's reportingperiod. Management's written assessment concludes that the entity'sinternal control was effective as of the report date.
d. Reynolds Distilleries identified what you agree is a materialweakness and made an adverse assessment in its report on ICFR. Theentity had not corrected the material weakness as of the end of thereporting period.
e. Cindy & David Company's management identified a materialweakness in the entity's ICFR during its assessment process. Theentity corrected this weakness about a month prior to the end ofthe annual reporting period. Management reassessed controls in thearea and believes they were effective as of the end of thereporting period. After reevaluating and retesting the relevantcontrols, you agree that the new controls are well designed, butsince the controls over this particular area are applied only onceat the end of each month (i. e., the controls have only operatedtwo times since being corrected), you do not believe you havesufficient audit evidence to assess their operating effectiveness.Management's written assessment concludes that the entity'sinternal control was effective as of the report date.
f. During the audit of ICFR for Big Al & Larry Industries, youdiscover several control deficiencies. You determine that there ismore than a reasonable possibility that any one of them couldresult in a financial statement misstatement. Although you do notbelieve that any of the deficiencies taken individually will resultin a material misstatement, you believe there is a moderately lowlikelihood that, taken together, the deficiencies could produce amaterial misstatement. Management's written assessment concludesthat the entity's internal control was effective as of the reportdate
