Gail Is Auditing the Financial Statements of Hoefener Home Improvements

question 121

Multiple Choice

Gail is auditing the financial statements of Hoefener Home Improvements, a publicly held company. Gail notes several deficiencies in internal control, and is trying to determine whether each deficiency constitutes a significant deficiency or a material weakness. Which best describes the framework Gail should use in making this evaluation?

• A) A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.
• B) A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement.
• C) A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is a reasonable possibility of material misstatement.
• D) A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is more than a remote chance of a material misstatement.

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Definitions:

Sales Promotion

A marketing strategy involving short-term incentives to encourage the purchase or sale of a product or service.

Quicker Purchases

The process or strategy designed to accelerate the buying process, often through technology or streamlined operations.

Goodwill

An intangible asset that arises when a company is acquired for more than its fair market value, reflecting the brand's reputation and customer relations.

Outdoor Advertising

A form of advertising that reaches consumers while they are outside their homes, such as billboards, transit posters, and digital signage.