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Exam AUD topic 1 question 940 discussion

Actual exam question from AICPA's AUD
Question #: 940
Topic #: 1
[All AUD Questions]

Gail is auditing the financial statements of Hoefener Home Improvements, a publicly held company. Gail notes several deficiencies in internal control, and is trying to determine whether each deficiency constitutes a significant deficiency or a material weakness. Which best describes the framework Gail should use in making this evaluation?

  • A. A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.
  • B. A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement.
  • C. A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is a reasonable possibility of material misstatement.
  • D. A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is more than a remote chance of a material misstatement.
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Suggested Answer: A 🗳️
Choice "A" is correct. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.
Choice "B" is incorrect. For nonissuers, a significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement. However, Hoefener is an issuer, so different rules apply.
Choice "C" is incorrect. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting.
Choice "D" is incorrect. For issuers, a material weakness exists when there is a reasonable possibility of material misstatement.
by gemazyni at April 5, 2025, 5:20 p.m.

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