Which best describes Jefferson’s communica- tion requirements?

The following are general questions about assessing control risk, testing controls, and reporting on internal controls. Choose the best response.
a. During the planning stage of an audit, the auditor initially assessed both inherent risk and control risk at a high level. Further testing of the client’s internal controls led the auditor to reduce the assessment of control risk. Which of the following will most
likely occur as a result?
(1) The auditor may reduce the assessment of inherent risk to match the control risk,
since they were assessed at the same level during the initial planning.
(2) The auditor may decrease the allowed level of detection risk.
(3) The auditor may rely solely on analytical procedures, with no substantive proce-
dures performed.
(4) The auditor may reduce the amount of substantive procedures performed.
b. When assessing control risk, an auditor is required to document the auditor’s:
Understanding of the Entity’s Basis for the Auditor’s
Control Environment Risk Assessment
(1) Yes
(2) No
(3) Yes
(4) No
No
Yes
Yes
No
c. Jefferson, CPA, has identified five significant deficiencies in internal control during
the audit of Portico Industries, a nonpublic company. Two of these conditions are
considered to be material weaknesses. Which best describes Jefferson’s communica-
tion requirements?
(1) Communicate the two material weaknesses to Portico’s management and those
charged with governance, but not the three significant deficiencies that are not
material weaknesses.
(2) Communicate all five significant deficiencies to Portico’s management and those
charged with governance, distinguishing between material weaknesses and sig-
nificant deficiencies.
(3) Communicate all five significant deficiencies to Portico’s management and those
charged with governance, but only require a management response with respect
to the two material weaknesses.
(4) Communicate all five significant deficiencies to Portico’s management and those
charged with governance, without distinction among the deficiencies.

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