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      Question

      An auditor notices that a bank’s internal controls

      over loan approvals are weak, but substantive testing of balances shows no material misstatements. Which is the correct implication under SA 315 and SA 330?
      A Audit opinion must be qualified immediately. Correct Answer Incorrect Answer
      B Internal control weaknesses are reported, but clean opinion can still be given if substantive evidence supports true and fair view. Correct Answer Incorrect Answer
      C No reporting of weaknesses is necessary since balances are correct. Correct Answer Incorrect Answer
      D Weak controls automatically imply misstatements exist. Correct Answer Incorrect Answer
      E Auditor must withdraw from the engagement. Correct Answer Incorrect Answer

      Solution

      Weak controls increase audit risk but if substantive procedures show balances are fairly stated, opinion may remain unmodified; however, weaknesses are communicated to management.

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