With Respect to the Audit of a Nonissuer, Significant Deficiencies

question 422

Multiple Choice

With respect to the audit of a nonissuer, significant deficiencies are matters that come to an auditor's attention, which should be communicated to an entity's management and those charged with governance because they represent:

• A) Material irregularities or illegal acts perpetrated by high-level management.
• B) Deficiencies in the design or operation of internal control that could reasonably be expected to cause a non-inconsequential misstatement in the financial statements.
• C) Flagrant violations of the entity's documented conflict-of-interest policies.
• D) Intentional attempts by client personnel to limit the scope of the auditor's fieldwork.

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Definitions:

Direct Labor

The wages paid to workers who are directly involved in the production or manufacture of goods or services.

Direct Materials

Raw materials that can be directly attributed to the production of finished goods.

Relevant Range

The spectrum of operations within which the behaviors of variable and fixed costs are considered accurate.

Operating Decisions

Definition: Decisions made by management related to the day-to-day operations of a company, including costs, production, and pricing strategies.