1) For each of the following independent situations relating to the audit of int
ID: 2380959 • Letter: 1
Question
1) For each of the following independent situations relating to the audit of internal controls, indicate the reason for and the type of audit report you would issue. That is, as well as giving the type of opinion you would issue, also discuss any other modifications to the report you would make, if any.
a) During the audit of Wood Pharmaceuticals, you are surprised to find several control deficiencies in the company's internal controls. You determine that there is a reasonable possibility that any one of them could result in a misstatement that is significant. Although the odds are extremely low that the deficiencies, singly or taken together, will results in a material misstatement of the company's financial statements, the large number of problems causes you concern. Management's written assessment concludes that the company's controls were effective as of the report date.
b) You agreed to perform an audit for Rodriguez & Co. after the client's year-end. Due to time constraints, your audit firm could not complete a full audit of internal controls. However, the evidence you did collect suggests that the company has exceptionally strong controls. You seriously doubt that a material weakness would have been found if time had permitted a more thorough audit. Management's written assessment concludes that the company's controls were effective as of the report date.
c) Reynolds' Distilleries identified what you agree is a material weakness in internal controls and made an adverse assessment in its report on controls. The company had not corrected the material weakness as of the end of the reporting period.
Explanation / Answer
A) I would issue a qualified report and I'd report my reservations about the control deficiencies and even though the probability of misstatements is low, if there is one, it'll be a significant misstatement. The management should rectify it and hence the controls aren't completely effective as of the report date.
B) I would issue an unqualified report as the checks I have conducted have yielded exceptionally positive results. As an auditor, we have discretionary powers to go for sample checking instead of a thorough checking if the Internal Controls are very strong. The effectiveness of the controls determine the extent to which the checking needs to be done.
C) I would issue an unqualified report as the organization has included the fact that there's a material weakness in their internal controls and made an adverse assessment in its report. So the report is giving a fair view of the situation and the people who read it will be aware of it and can make their decision accordingly.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.