Question

AAA Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. LinktheEarth's management remediated all of the weaknesses that AAA found. However, the auditors did not have sufficient time to retest the controls. What report should AAA issue with regards to internal control over financial reporting at year-end?

1) Unqualified report
2) Adverse report
3) Qualified report
4) Disclaimer on opinion

Answer 1

AAA Associates should issue a Disclaimer of Opinion on LinktheEarth Corporation's internal control over financial reporting since the remediations were not retested and there is not enough basis for an opinion.

Step-by-step explanation:

If AAA Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting and found a number of material weaknesses, which the management claimed to have remediated but the auditors did not have sufficient time to retest the controls, the appropriate report to issue would not be an Unqualified report. An Unqualified report suggests that the financial statements give a true and fair view without any identified deficiencies in internal controls. Since the remediated controls have not been retested, AAA cannot issue this confidently. An Adverse report would be issued if the internal controls are not effective, and the un-remediated material weaknesses would still be present after the end of the year. A Qualified report is issued when the auditors have reservations regarding specific aspects of the internal controls, which is not entirely the case here. Therefore, the most appropriate report considering the circumstances is a Disclaimer of opinion, which indicates that the auditors do not have sufficient basis to express an opinion on the effectiveness of the internal controls.