Audit and Assurance Practice Exam

What should an auditor express if a material weakness exists in a client's Internal Control over Financial Reporting (ICFR)?

1. An unmodified opinion on ICFR

2. A disclaimer of opinion

3. An adverse opinion on ICFR

4. A qualified opinion on the material misstatements

The correct answer is: An adverse opinion on ICFR

When an auditor identifies a material weakness in a client's Internal Control over Financial Reporting (ICFR), the appropriate response is to express an adverse opinion on the effectiveness of those controls. A material weakness signifies that there is a significant deficiency in the internal controls that could lead to a misstatement of the financial statements, which has not been appropriately addressed by management. An adverse opinion indicates that the auditor believes the internal controls are not effective in preventing or detecting material misstatements, thereby providing stakeholders with a clear understanding of the potential risks associated with the client's financial reporting. This type of opinion alerts users of the financial statements that they should exercise caution since the controls in place do not meet the required standards for reliability and accuracy. In contrast, an unmodified opinion would suggest that the internal controls are effective, a disclaimer would imply that the auditor could not obtain sufficient evidence to form an opinion (which is not the case when a material weakness is identified), and a qualified opinion usually pertains to specific misstatements rather than the overall effectiveness of internal controls. Therefore, the expression of an adverse opinion accurately reflects the situation when a material weakness is present.