| Chapter: | Reading | Topic |
In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a company with multiple business units?
When evaluating an entity's internal control over financial reporting (ICFR) for an integrated audit, auditors perform control tests to determine if controls effectively reduce the risk of material misstatement. They assess each identified deficiency to determine whether it is a significant deficiency or a material weakness.
However, because an audit of ICFR provides assurance only about whether material weaknesses (not significant deficiencies) exist, the auditor is required to test only controls that, individually or in combination, could constitute a material weakness.
When the entity under audit has components (ie, business units), the auditor should assess the risk that each component creates for a material misstatement to the consolidated F/S. The auditor should test ICFR over risks that present a reasonable possibility of a material misstatement to the group F/S (ie, controls that, if deficient, could create material weaknesses). Controls at components that do not present a reasonable possibility of a material misstatement (eg, because the component is immaterial) do not need to be tested (Choices A and B).
(Choice C) Even if the component is material to the consolidated F/S, the auditor need test only controls over risks that may constitute a material weakness.
Things to remember:
In an integrated audit, the auditor must test controls at component units only if those controls address risks that present a reasonable possibility of material misstatement to the group F/S (ie, potential material weaknesses).
Lecture References :
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