Following are examples of control deficiencies that may represent significant de
ID: 2377053 • Letter: F
Question
Following are examples of control deficiencies that may represent significant deficiencies or material weaknesses. For each of the following scenarios, indicate whether the deficiency is a significant deficiency or material weakness. Justify your decision.
During its assessment of ICFR, the management of Lorenz Corporation and its auditors identified the following control deficiencies that individually represent significant deficiencies:
a.During its assessment of ICFR, the management of Lorenz Corporation and its auditors identified the following control deficiencies that individually represent significant deficiencies:
Explanation / Answer
Based only on these facts, the auditor should determine that the combination of these
significant deficiencies represents a material weakness for the following reasons:
Individually, these deficiencies were evaluated as representing a more than remote
likelihood that a misstatement that is more than inconsequential, but less than material,
could occur. However, each of these significant deficiencies affects the same set of
accounts. Taken together, these significant deficiencies represent a more than remote
likelihood that a material misstatement could occur and not be prevented or detected.
Therefore, in combination, these significant deficiencies represent a material weakness
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Based only on these facts, the auditor should determine that the combination of these
significant deficiencies represents a material weakness for the following reasons:
Individually, these deficiencies were evaluated as representing a more than remote
likelihood that a misstatement that is more than inconsequential, but less than material,
could occur. However, each of these significant deficiencies affects the same set of
accounts.
Taken together, these significant deficiencies represent a more than remote
likelihood that a material misstatement could occur and not be prevented or detected.
Therefore, in combination, these significant deficiencies represent a material weakness.
In addition, during the past year, the company experienced a significant level of growth
in the loan balances that were subjected to the controls governing credit loss estimation
and revenue recognition, and further growth is expected in the upcoming year.
Based only on these facts, the auditor should determine that the combination of these
significant deficiencies represents a material weakness for the following reasons: