Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

How should Jefferson, CPA, communicate significant deficiencies discovered during an audit?

1. Communicate all deficiencies without distinction

2. Communicate only those considered material weaknesses

3. Communicate all deficiencies, distinguishing between severity

4. Only communicate material weaknesses to management

The correct answer is: Communicate all deficiencies, distinguishing between severity

When Jefferson, CPA, communicates significant deficiencies discovered during an audit, it is essential to provide a clear and comprehensive overview that distinguishes between different levels of severity. By choosing to communicate all deficiencies while making distinctions based on severity, Jefferson can ensure that management understands not only the existence of the deficiencies but also their potential impact on financial reporting and internal controls. This approach serves to inform management about less severe deficiencies that might not qualify as material weaknesses but still require attention and remediation. By providing this context, Jefferson enables management to prioritize the issues effectively and take appropriate action. It enhances the quality of communication between the auditor and the management, fostering an understanding of the importance of each deficiency identified. Being transparent about all deficiencies, while still explaining which ones are more critical, supports the overall objective of audits: improving the effectiveness of internal controls and financial reporting. This method helps organizations develop a more robust control environment by addressing all identified concerns, regardless of their severity.