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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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