Final answer:
In an audit of internal controls, the sequential process for assessing control deficiencies includes identifying controls to be tested, testing the design and operating effectiveness of these controls, and evaluating any identified control deficiencies for their impact on financial reporting.
Step-by-step explanation:
The sequential process for assessing control deficiencies in an audit of internal controls involves several critical steps. Initially, auditors identify controls that are essential to the financial reporting process and decide which to test. Following this, they test the design and operating effectiveness of the selected controls to ensure they are properly conceived (design effectiveness) and that they are being applied consistently during the audit period (operating effectiveness). Lastly, any control deficiencies that were identified during testing are then evaluated to determine their impact on the financial reporting process and to decide whether they constitute significant deficiencies or material weaknesses that need to be reported to those charged with governance of the organization.