AICPA CPA-Auditing Exam - Topic 3 Question 98 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 98
Topic #: 3

With respect to the audit of a nonissuer, significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's management and those charged with governance because they represent:

AManipulation or falsification of accounting records or documents from which financial statements are prepared.

BDisclosures of information that significantly contradict the auditor's going concern assumption.

CMaterial irregularities or illegal acts perpetrated by high-level management.

DDeficiencies in the design or operation of internal control that could reasonably be expected to cause a non-inconsequential misstatement in the financial statements.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. Significant deficiencies in the design or operation of internal control should be communicated to management and those charged with governance because there is more than a remote likelihood that they will result in a financial statement misstatement that is more than inconsequential.

Choice 'a' is incorrect. Manipulation or falsification of accounting records may not represent an internal control deficiency (e.g., if such fraud occurs through collusion).

Choice 'b' is incorrect. Information indicative of a going concern problem is not an internal control deficiency.

Choice 'c' is incorrect. Irregularities or illegal acts may not represent deficiencies in internal control (e.g., if such acts occur through collusion).

by Veda at Sep 18, 2024, 05:34 PM

Limited Time Offer

25%

Off

Get Premium CPA-Auditing Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Eloisa

4 months ago

Really? I thought it was more about fraud and manipulation.

upvoted 0 times

...

Josephine

5 months ago

D is definitely the right choice here.

upvoted 0 times

...

Dannie

5 months ago

Wait, are we sure it's not about high-level management's actions?

upvoted 0 times

...

Carey

5 months ago

Totally agree, it's about the design or operation of controls!

upvoted 0 times

...

Armanda

5 months ago

Significant deficiencies are all about internal control issues.

upvoted 0 times

...

Miesha

6 months ago

I definitely recall that significant deficiencies should be communicated, and it seems like option D fits best since it talks about internal control deficiencies.

upvoted 0 times

...

Viola

6 months ago

I’m a bit confused; I thought significant deficiencies were more about illegal acts or fraud, but now I’m not so sure.

upvoted 0 times

...

Georgiann

6 months ago

I think I saw a similar question where we had to identify what constitutes a significant deficiency, and I feel like it was about internal controls causing misstatements.

upvoted 0 times

...

Yuki

6 months ago

I remember studying that significant deficiencies relate to internal controls, but I'm not sure if it's specifically about design or operation.

upvoted 0 times

...

Raul

6 months ago

Ah, this is a tricky one. I know significant deficiencies have to do with internal control, but I'm not totally clear on how that differs from the other options. I'll make sure to review that concept before the exam.

upvoted 0 times

...

Bok

6 months ago

Hmm, I'm a bit unsure on this one. The options seem pretty similar, and I want to make sure I really understand the difference between significant deficiencies and the other types of issues. Let me re-read the question carefully.

upvoted 0 times

...

Rodrigo

6 months ago

This question seems straightforward - I think the answer is D, deficiencies in internal control that could lead to misstatements. I'll double-check the definitions, but that's my initial take.

upvoted 0 times

...

Eulah

6 months ago

Okay, I think I've got it. The key is that significant deficiencies are specifically about internal control issues that could reasonably lead to misstatements, not just any irregularities or illegal acts. D seems like the best answer here.

upvoted 0 times

...

Francine

2 years ago

I'll go with D, but only if the auditor can do it without setting off any alarms in the finance department. We don't need another Enron situation on our hands, am I right? Maybe they can just slip it in the report under 'minor recommendations'.

upvoted 0 times

Chantell

1 year ago

Kina: Let's make sure the auditor handles it discreetly.

upvoted 0 times

...

Kina

1 year ago

Definitely, we don't want to cause any unnecessary panic.

upvoted 0 times

...

Hildred

1 year ago

I agree, we have to be careful with how we communicate these deficiencies.

upvoted 0 times

...

Mitzie

2 years ago

Hmm, I'm torn between B and D. Discrepancies with the going concern assumption are pretty serious, but I guess weaknesses in internal controls that could lead to misstatements are even more pressing. Better not to take any chances, right?

upvoted 0 times

Titus

1 year ago

Marcos: Definitely, accuracy is key in auditing.

upvoted 0 times

...

Jonell

2 years ago

Yeah, it's better to be safe than sorry when it comes to financial statements.

upvoted 0 times

...

Marcos

2 years ago

I agree, it's important to address deficiencies in internal controls.

upvoted 0 times

...

Vincent

2 years ago

I think D is the correct answer. Weak internal controls can cause misstatements.

upvoted 0 times

...

Teddy

2 years ago

D seems like the obvious choice here. Auditors need to identify and report on those pesky internal control issues before they become a bigger problem. Though I do wonder if the definition of 'non-inconsequential' is as clear-cut as it sounds.

upvoted 0 times

Flo

1 year ago

Definitely, addressing internal control issues promptly can help maintain the integrity and accuracy of the financial reporting process.

upvoted 0 times

...

Ayesha

1 year ago

I agree, it's important to catch those deficiencies early on to prevent any potential misstatements in the financial statements.

upvoted 0 times

...

Leandro

2 years ago

D seems like the obvious choice here. Auditors need to identify and report on those pesky internal control issues before they become a bigger problem.

upvoted 0 times

...

Emiko

2 years ago

I'm not sure, but I think it's between C and D.

upvoted 0 times

...

Lashawn

2 years ago

I'm going with C. If high-level management is up to no good, that's definitely something the auditor needs to communicate to the appropriate parties. Can't have those corporate fat cats getting away with anything!

upvoted 0 times

...

Stacey

2 years ago

Option D sounds about right. Significant deficiencies in internal control are a big deal, even if they don't lead to material misstatements. Gotta keep those auditors on their toes!

upvoted 0 times