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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reporting on other assignments

Lindqvist & Co audits Harbour Retail, a listed company. Management asks the firm to issue an assurance report on the operating effectiveness of internal controls over financial reporting for the year, as a separate engagement from the audit. The firm has found a control deficiency in the sales cycle that management corrected for only the last two months of the year. Which conclusion would be most appropriate in the firm's report?

The firm should report that controls were not effective for the whole period, or qualify its conclusion, and describe the deficiency and when it was remediated. Fixing the control only in the last two months does not cure ten months of ineffective operation.

  1. AConclude controls were effective throughout the year because the deficiency is now remedied
  2. BConclude controls were effective at the year end only, ignoring the earlier period, without any reference to the deficiency
  3. CReport an unmodified conclusion because the deficiency is limited to one cycle
  4. DReport that controls were not effective for the period as a whole, or qualify the conclusion, describing the deficiency and the date of remediationCorrect

Explanation

A report covering the whole period must reflect that the control did not operate effectively for ten months. Subsequent remediation shows improvement but does not cure the earlier failure, so the conclusion must be adverse or qualified, with the deficiency described. Options A and C ignore the period, and option B hides a known deficiency.

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