Question

Cain Company’s management engaged Bell, CPA, to audit the effectiveness of Cain’s internal control over financial reporting. Bell’s report, which was accompanied by management’s separate report presenting its written assessment about the effectiveness of internal control, described several material weaknesses and potential errors and fraudulent activities that could occur. Subsequently, management included Bell’s report in its annual report to the board of directors with a statement that the cost of correcting the weaknesses would exceed the benefits. Bell should

Answer 1

Disclaim an opinion as to management's cost-benefit statement

Step-by-step explanation:

In this scenario Bell a CPA was engaged to audit the effectiveness of Cain’s internal control over financial reporting.

After providing a report that stated there are several material weaknesses and potential errors and fraudulent activities that could occur.

Bell has completed his role in this audit by giving an opinion about the effectiveness of Cain's internal control.

The decision on the cost versus benefit of management report is out of his function as an auditor.

So he needs to disclaim to an opinion as to management's cost-benefit statement.

This is management function and not that of the auditor.