• Explanation

Unlike issuers A company that issues publicly traded stock or other securities governed by the SEC., who are subject to PCAOB A private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee accounting professionals who provide independent audit reports for publicly traded companies. regulations, nonissuers A privately held entity that does not report to the SEC and for which audits do not follow PCAOB standards. may elect to have either audits of financial statements (F/S) only or integrated auditsAn audit of an entity's financial statements and internal control over financial reporting.. Integrated audits result in opinions on both the fairness of the client's F/S and the effectiveness of their internal controlsProcedures put in place to ensure the integrity of financial information and to prevent or detect and correct fraud or errors. over financial reporting (ICFR) (Choice D).

A nonissuer engagement that results in an opinion on the effectiveness of the client's internal controls can be performed only as part of an integrated audit. The auditor must obtain reasonable assurance about whether material internal control weaknesses exist before expressing an opinion on the effectiveness of the client's ICFR.

(Choice A)  The auditor is required to search for and identify material weaknesses in ICFR, not all weaknesses and deficiencies in internal control.

(Choice C)  ICFR cannot be effective if one or more material weaknesses exist. However, a material weakness does not always mean a material financial misstatement Incorrect information in the financial statements that may impact the users' financial decisions. exists.

Things to remember:
A nonissuer engagement that result in an opinion on the effectiveness of internal controls over financial reporting (ICFR) must always be part of an integrated audit, which also includes an opinion on the fairness of the financial statements. Before expressing an ICFR opinion, the auditor must obtain reasonable assurance about whether material weaknesses exist, not whether those weaknesses have created financial misstatements.