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CMA Intermediate · Corporate Accounting and Auditing · Report on Internal Financial Control over Financial Reporting

During an IFCoFR audit, the auditor finds that the company's controls over a significant account were not operating effectively, constituting a material weakness, although the auditor's financial statement opinion is unaffected. What is the appropriate effect on the auditor's IFC report?

The auditor should issue an adverse opinion on internal financial controls over financial reporting, because a material weakness means controls are not adequate or effective. This is separate from the financial statement opinion, which may still be unmodified, and the weakness is described in the report.

  1. AIssue an unmodified opinion with an emphasis of matter
  2. BIssue an adverse opinion on IFCoFR, since the company has not maintained adequate internal financial controls operating effectivelyCorrect
  3. CDisclaim the opinion because the financial statements are unaffected
  4. DWithdraw the report on IFC since it is voluntary

Explanation

Where one or more material weaknesses exist, the company has not maintained adequate IFC over financial reporting, so the auditor gives an adverse opinion on IFCoFR. This can coexist with an unmodified opinion on the financial statements, and the report must explain the weakness. A disclaimer applies only where scope is limited.

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