Question

S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?

A) S&H must still assume that management has assessed the effectiveness of internal control.

B) Depending on other factors in the audit, S&H can still issue an unqualified opinion.

C) S&H should consider this situation a limitation on the scope of the audit.

D) Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.

Answer 1

The inability of S&H Associates to obtain written representation from management about internal control at Bob's Bikes should be considered a limitation on the scope of the audit, impacting the issuance of an unqualified opinion.

Step-by-step explanation:

When S&H Associates audits Bob's Bikes and cannot obtain a written representation from management concerning internal control, the impact on the audit depends on the nature of the limitation.

If management refuses to provide a written assessment of the effectiveness of internal control systems, the auditor may consider this a scope limitation. This can affect the auditor's ability to issue an unqualified opinion on the entity's financial statements.

An auditor cannot simply assume management has assessed the effectiveness of internal control without evidence, and while not having a written representation does not preclude issuing an unqualified opinion, it does depend on whether sufficient other audit evidence can be obtained.

Therefore, the correct statement is C) S&H should consider this situation a limitation on the scope of the audit.