Final answer:
The communication of significant deficiencies in internal control by auditors should be addressed to the Board of Directors, who has the primary responsibility for overseeing financial reporting and governance. This ensures proper action can be taken to correct such deficiencies.The right answer is 2
Step-by-step explanation:
The auditors' communication of internal control significant deficiencies should be addressed primarily to those who have the responsibility to oversee the financial reporting and disclosure process within the company. According to corporate governance principles, this responsibility lies primarily with the Board of Directors. The Board of Directors, elected by the shareholders, serves as the first line of governance and oversight for senior management. Additionally, in the context of public companies, these communications may also be shared with senior management and, in some cases, may be disclosed to the public, meaning shareholders would indirectly receive the information. However, the primary addressee of such communication should be the Board of Directors, as they are best positioned to take appropriate action to rectify the deficiencies. While external auditors are responsible for auditing the company's financial statements and expressing an opinion on the effectiveness of internal control over financial reporting, they are not typically the audience for this communication. It is important to note that good corporate governance is crucial for the transparency and accountability of a company to its investors as well as for the proper functioning of capital markets, as demonstrated by the failure in the case of Lehman Brothers, where corporate governance did not provide accurate financial information to investors.