Question

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would not cause the auditor to disclaim an opinion?

1) Management includes disclosures about corrective actions taken by the entity after the date of management's assessment.
2) The entity plans to implement new controls.
3) Management believes the cost of correcting a material weakness would exceed the benefits derived from implementing the new controls.
4) Disclosure of material weaknesses corrected during the period.

Answer 1

The statement that would not cause the auditor to disclaim an opinion is the disclosure of material weaknesses that have been corrected during the period.

Step-by-step explanation:

The statement that would not cause the auditor to disclaim an opinion is 4) Disclosure of material weaknesses corrected during the period.

When management discloses material weaknesses that have been corrected during the period, it shows that the entity has taken steps to address the identified issues and improve its internal control over financial reporting. This indicates that management is actively working to enhance the effectiveness of internal controls, which would not result in the auditor disclaiming an opinion.

In contrast, the other statements may have implications that could potentially affect the auditor's opinion. For example, if management discloses corrective actions taken after the assessment, it could indicate that there were significant issues with internal control during the assessment period. Similarly, if the entity plans to implement new controls, it suggests that there were deficiencies in the existing controls. If management believes that the cost of correcting a material weakness would exceed the benefits derived from implementing new controls, it raises concerns about the effectiveness of internal control.