Question

If an internal control exception is identified, the auditor_______.

A) Must use their professional judgment to determine if the exception is a control deficiency, a significant deficiency, or a material weakness
B) Must use published frameworks to determine if the exception is a control deficiency, a significant deficiency, or a material weakness
C) Should notify the Securities and Exchange Commission (SEC) within 14 days
D) Should consider withdrawing from the engagement.

Answer 1

Upon identifying an internal control exception, auditors must use their professional judgment to decide if it's a deficiency, significant deficiency, or material weakness, and consider the appropriate response.

Step-by-step explanation:

If an internal control exception is identified, the auditor must use their professional judgment to determine if the exception is a control deficiency, a significant deficiency, or a material weakness. After identifying an exception, auditors assess the severity of the issue in the context of the company's financial reporting and operations.

They do not automatically notify regulatory bodies such as the Securities and Exchange Commission (SEC), and withdrawal from the engagement is only considered under extreme circumstances when an auditor believes that the integrity of their report cannot be maintained due to identified exceptions.