Question

Which of the following is correct with respect to control deficiencies discovered during an audit?

1) Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management.
2) All material weaknesses in internal control should be reported to the audit committee.
3) All such matters must be communicated to the audit committee and regulatory agencies.
4) All control deficiencies are also significant deficiencies.

Answer 1

Auditors are obligated to report all material weaknesses in internal control to both management and the audit committee, but not necessarily to regulatory agencies unless required by specific regulations. Control deficiencies vary in severity and not all are significant.

Step-by-step explanation:

When it comes to control deficiencies discovered during an audit, the correct statements among the options provided are that auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management, and all material weaknesses in internal control should be reported to the audit committee.

Communication to regulatory agencies is not always required unless stipulated by industry regulations or laws. However, not all control deficiencies are significant deficiencies; this determination depends on the severity of the control deficiencies in preventing or detecting misstatements in the financial statements.