The PCAOB Has Outlined a Number of Circumstances That Are

question 37

Essay

The PCAOB has outlined a number of circumstances that are indicators of a material weakness.In addition,other control deficiencies may or may not be a material weakness depending upon details of the circumstances involved.Categorize the following: $$\begin{array} { | l | l | l | l | } \hline & \begin{array} { c } \text { Strong } \\\text { indicator of a } \\\text { material } \\\text { weakness in } \\\text { internal } \\\text { control }\end{array} & \begin{array} { c } \text { Other } \\\text { control } \\\text { deficiency } *\end{array} & \begin{array} { c } \text { Neither of } \\\text { preceding } \\\text { 2 columns }\end{array} \\\hline \begin{array} { l } \text { a. Ineffective oversight of external } \\\text { reporting by the audit committee. }\end{array} & & & \\\hline \begin{array} { l } \text { b. Restatement of previously issued } \\\text { financial statements to reflect the } \\\text { correction of a material misstatement. }\end{array} & & & \\\hline \text { c. Lack of effective antifraud programs. } & & & \\\hline \begin{array} { l } \text { d. Lack of effective controls over the } \\\text { period-end financial reporting process. }\end{array} & & & \\\hline \begin{array} { l } \text { e. A deviation identified during tests of } \\\text { controls. }\end{array} & & & \\\hline \begin{array} { l } \text { f. Identification of material fraud on the } \\\text { part of senior management. }\end{array} & & & \\\hline \begin{array} { l } \text { g. } \text { Identification by the auditors of a } \\\text { material misstatement in circumstances } \\\text { that indicate that the client's internal } \\\text { control would not have detected it. }\end{array} & & & \\\hline \begin{array} { l } \text { h. A chief internal auditor who reports } \\\text { directly to the audit committee. }\end{array} & & & \\\hline \begin{array} { l } \text { i. Identification of immaterial fraud on } \\\text { the part of senior management. }\end{array} & & & \\\hline \begin{array} { l } \text { j. Ineffective oversight of internal } \\\text { control by the audit committee. }\end{array} & & & \\\hline\end{array}$$ *May be material weakness,significant deficiency,or lesser deficiency,but is not ordinarily considered a strong indicator of a material weakness in internal control.

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Definitions:

Cumulative Quantity Discounts

A pricing strategy where the price per unit decreases as the total quantity purchased over time increases.

Seasonal Discounts

Price reductions offered during specific times of the year to stimulate sales during slow periods.

Inventory

The quantity of goods or materials on hand that a business holds for the purpose of resale or production.

Break Even

The point at which total revenues equal total costs, resulting in no net loss or gain for a business.