A financial statement auditor concludes that internal controls over cash are not functioning as designed.She believes that material misstatements to the cash accounts are possible because of the deficiencies.What is the course of action that the auditor will most likely take?
A)Report the audit to the regulatory agencies of the IRS and SEC.
B)Develop specific tests for cash balances to determine the extent of misstatement.
C)Explain to the client that the audit firm will not be able to complete the audit.
D)Test the internal control over cash.

Question

Quizplus · Accepted Answer

The auditor should develop specific tests for cash balances to determine the extent of misstatement. This will allow the auditor to obtain sufficient evidence to determine if material misstatements to the cash accounts exist, and if so, quantify the magnitude of the misstatement. The other options are not necessary or appropriate courses of action at this stage. Reporting to regulatory agencies should only be done in specific circumstances and after certain criteria are met. Explaining to the client that the audit firm will not be able to complete the audit is premature and not an appropriate action without further assessment. Testing the internal control over cash alone may not be sufficient to determine the extent of misstatement.

A Financial Statement Auditor Concludes That Internal Controls Over Cash