CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesHard
A CPA firm is performing an audit of a private company and has identified several significant deficiencies in the client's internal control. During the audit, the engagement partner discusses these deficiencies with the client's management. When should these significant deficiencies also be communicated to those charged with governance?
- AOnly if management requests the communication.
- BDuring the engagement planning phase, before any audit work begins.
- CBy the date of the auditor's report, and within 60 days of the report release date.
- DOnly if the deficiencies are also material weaknesses.
Show answer & explanationAnswer & explanation
Correct answer: C. By the date of the auditor's report, and within 60 days of the report release date.
Auditors are required to communicate significant deficiencies and material weaknesses in internal control to those charged with governance by the date of the auditor's report. For non-issuers, this communication must generally be made within 60 days following the report release date.
Why the other options are wrong
- A. The communication is mandatory, not contingent on management's request.
- B. Significant deficiencies are identified during the audit, not necessarily during the planning phase, and communication occurs later.
- D. Both significant deficiencies and material weaknesses must be communicated, not just material weaknesses.
Communication of Internal Control Deficiencies
Auditors are required to communicate identified significant deficiencies and material weaknesses in internal control to management and those charged with governance.
- Must be in writing.
- Timing requirements vary slightly for issuers vs. non-issuers.
- Significant deficiencies are less severe than material weaknesses but still important.
Memory trick: Communicate control issues timely.