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

In the IFC audit of Narmada Foods Ltd, the auditor concludes that a material weakness exists, though the weakness did not affect the opinion on the financial statements. Which statement about the IFC report is correct?

The auditor issues an adverse opinion on the company's internal financial controls because of the material weakness, while the financial statements opinion is judged separately. The weakness affects audit procedures but does not automatically make the financial statements opinion adverse or require withdrawal.

  1. AA modified (adverse) opinion on IFC is issued, and the report on the financial statements is not necessarily modified, but the material weakness is considered in the auditCorrect
  2. BThe IFC report is unmodified since the financial statements opinion is unmodified
  3. CThe auditor must withdraw from the engagement
  4. DThe financial statements opinion must automatically be adverse

Explanation

A material weakness leads to an adverse opinion on IFC operating effectiveness. The financial statements opinion is separate and depends on whether misstatements arise; the weakness is considered in determining the nature, timing and extent of tests. Hence the other options wrongly link the two opinions or require withdrawal.

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