Question

According to the text, all of the following are indicators of a material weakness except

A. The commission of fraud by senior management

B. A restatement of previous year financial statements to correct a material misstatement.

C. An ineffective audit committee.

D. The finding of a "known error" in the current year audit that is not material to the financial statements.

Answer 1

A 'known error' in the current year audit that is not material to the financial statements is not an indicator of a material weakness, unlike fraud by management, restatement of financials, and an ineffective audit committee.

Step-by-step explanation:

According to the text, indicators of a material weakness in internal control over financial reporting typically include scenarios such as the commission of fraud by senior management, restatements of the previous year's financial statements to correct a material misstatement and an ineffective audit committee.

However, the finding of a "known error" in the current year audit that is not material to the financial statements is not an indicator of a material weakness. Material weaknesses are severe enough to warrant attention and correction, as they may represent a reasonable possibility that a company's financial statements could contain material misstatements.