Area IV: Forming Conclusions and Reporting — CPA Practice Question 07

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Distinguish between the Financial Statement opinion and the ICFR opinion. They can differ. A material weakness = Adverse ICFR opinion.

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C.Issue an adverse opinion on ICFR, explicitly stating the definition of a material weakness and that ICFR is not effective.✓ Correct

PCAOB AS 2201 states that if one or more material weaknesses exist, the company's internal control over financial reporting cannot be considered effective. The auditor must express an adverse opinion on the effectiveness of internal control.

Common mistakes

Thinking that because the financial statements are fine (no errors found), the controls must be fine. This ignores the 'could have' aspect of control risk.

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Common mistakes

Practice the full CPA AUD Practice Exam 2

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