16. Jefferson, CPA, has identified five significant deficiencies in internal control during the audit of Portico...

16. Jefferson, CPA, has identified five significant deficiencies in internal control during the audit of Portico Industries, a public company, two of these conditions are considered to be material weaknesses. The CPA communicates all of the five significant deficiencies to management. Which best describes Jefferson’s communication requirements to the audit committee and the public?

A. Communicate the two material weaknesses to Portico’s the audit committee and the public, but not the three significant deficiencies that are not material weaknesses.

B. Communicate the two material weaknesses to Portico’s audit committee and the public, and the three significant deficiencies that are not material weaknesses to Portico’s the audit committee and the public.

C. Communicate the two material weaknesses to Portico’s audit committee and the public; and the three significant deficiencies that are not material weaknesses to Portico’s audit committee, but not the public.

D. Communicate all five significant deficiencies to Portico’s audit committee and the public without distinction among the deficiencies.

Expert Solution

As per PCAOB Auditing Standard 2201, (An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements):

The auditor must communicate in writing to management and the audit committee all significant deficiencies and material weaknesses identified during the audit. The written communication should be made prior to the issuance of the auditor's report on the financial statements. The auditor's communication should distinguish clearly between those matters considered significant deficiencies and those considered material weaknesses.
If there are deficiencies that, individually or in combination, result in one or more material weaknesses, the auditor must express an adverse opinion on the company's internal control over financial reporting.
The auditor's report should include a description of the material weakness, which should provide the users of the audit report with specific information about the nature of the material weakness and its actual and potential effect on the presentation of the company's financial statements issued during the existence of the weakness.

Based on the above following is the correct option:

C. Communicate the two material weaknesses to Portico’s audit committee and the public; and the three significant deficiencies that are not material weaknesses to Portico’s audit committee, but not the public.

ekkarill92 answered 2 years ago

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