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?

A) Management includes disclosures about corrective actions taken by the entity after the date of management's assessment.

B) The entity plans to implement new controls.

C) Management believes the cost of correcting a material weakness would exceed the benefits derived from implementing the new controls.

D) Disclosure of material weaknesses corrected during the period.

Answer 1

Management disclosing corrective actions taken after the assessment date does not cause an auditor to disclaim an opinion about internal controls over financial reporting. It shows that management is addressing known issues, which is viewed positively by auditors.

Step-by-step explanation:

The student is asking about a situation related to auditing and internal control over financial reporting. Among the given options, the statement that would not cause the auditor to disclaim an opinion is A) Management includes disclosures about corrective actions taken by the entity after the date of management's assessment. This is because it indicates that management is aware of issues and is taking steps to correct them, which does not inherently compromise the effectiveness of the internal controls as of the assessment date. Implementation plans for new controls (option B) or beliefs about the cost-benefit of rectifying material weaknesses (option C) could indicate uncertainty or insufficient action which might contribute to a disclaimer of opinion. However, disclosures of material weakness corrections (option D) are also typically seen as positive, as they show responsiveness to known issues, but this already presupposes that there was a material weakness.