AICPA CPA-Auditing Exam - Topic 1 Question 57 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 57
Topic #: 1

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?

AA 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.

BA 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.

CA 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 a reasonable possibility of material misstatement.

DA 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 more than a remote chance of a material misstatement.

Show Suggested Answer

Suggested Answer: A

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.

Government Auditing

by Alline at Aug 24, 2022, 08:01 AM

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5 months ago

Okay, let me think this through. The project is in stage 4, so the closure planning should have been done earlier, in stage 3. I'm leaning towards option C as the correct answer.

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