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25 Cards in this Set
- Front
- Back
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What SAS guides the Communication of Internal Control Related Matters Identified in an Audit?
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SAS 112
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What SAS defines the terms "significant deficiency" and "material weakness"?
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SAS 112
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Is the term "reportable condition" still used?
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No
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What AU and SAS guide Internal Control?
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AU325 SAS 60
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What is control deficiency?
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When the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
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What is the short-cut definition of control deficiency?
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Control can't prevent or detect a material misstatement
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What is a deficiency in design?
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When a control necessary to meet the control objective is missing; or when the control objective is not always met, even if the control operates as designed
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What is a deficiency in operation?
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When a properly designed control does not operate as designed; or when the person performing the control does not have the authority or qualifications to effectively perform the control
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What is significant deficiency?
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A control deficiency (or combination of control deficiencies) that ADVERSELY AFFECTS the entity's ability to initiate, authorize, record, process, or report financial data RELIABLY in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected (where "inconsequential" means clearly immaterial)
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What is material weakness?
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A significant deficiency (or combination of significant deficiencies) that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected
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When evaluating control deficiences, what must the auditor determine?
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Whether identified deficiencies are "significant deficiencies" or "material weaknesses"
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When deciding if a control deficiency is a significant deficiency or a material weakness, what should the auditor consider?
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Both the Likelihood and Potential Magnitude of misstatement
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Multiple control deficiencies affecting the same financial statement item increases the likelihood of misstatement. T or F
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T
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What should the auditor consider that may reduce the severity of the effects of a deficiency?
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The effects of compensating controls
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The auditor must communicate the significant deficiencies and material weaknesses identified in the audit. T or F
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True
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What is the form of communication to be taken when significant deficiecies and material weaknesses are identified?
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Must be communicated to management and those charged with governance IN WRITING.
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What is the "report release date"?
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The date that the auditor grants the entity permission to use the auditor's report in connection with the audited financial statements
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What is the "timing" of the required communication regarding significant deficiecies and material weaknesses?
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Is best made by the "report release date" and should be made no later than 60 days following the report release date
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What is the authority given for Early communication of significant deficiecies and material weaknesses of internal control?
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The auditor MAY CHOOSE TO VERBALLY communicate CERTAIN significant deficiencies and material weaknesses during the audit (e.g., to permit timely correction); however, all identified significant deficiencies and material weaknesses must still be communicated in writing no later than 60 days following the report release date
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What is the authority given for communicating Other Matters that may or may not be significant deficiencies of internal control?
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The auditor may choose to communicate other matters either in writing or verbally (if communicated verbally, the auditor must document such communication)
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What should the written communication about significant deficiencies and material weaknesses include?
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1. State that the purpose of the audit was to express an opinion on the financial statements, not to express an opinion on the effectiveness of internal control;
2. State that the auditor is not expressing an opinion on the effectiveness of internal control; 3. Include the definition of the terms significant deficiency and, if applicable, material weakness; 4. Identify the matters that are considered to be significant deficiencies and, if applicable, material weaknesses; State that the communication is intended solely for the use of management, those charged with governance, and others within the organization (should not be used by anyone other than those specified parties) - if such a communication is required to be given to a governmental authority, that specific reference may be added; |
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May the auditor include additional statements regarding the general inherent limitations of internal control, including the possibility of management override?
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Yes, but it is not required
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Should the auditor issue a written communication stating that no significant deficiencies were identified?
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No. But the auditor is permitted to add a comment that no material weaknesses were identified, perhaps as requested to submit to a governmental authority
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Can management issue a written response to the auditor's communication of significant deficiences and material weaknesses to indicate corrective action taken or planned or stating management's belief that the costs of correction exceed the benefits?
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Yes.
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If management issues a response, to an auditor's communication regarding significant deficiences or material weaknesses, stating the costs of correction exceed the benefits, what should the auditor do?
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The auditor should add a paragraph to disclaim an opinion on management's written response
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