AICPA Exam CPA-Auditing Topic 1 Question 76 Discussion

Choice 'b' is correct. Significant deficiencies in the design or operation of internal control should be communicated to management and those charged with governance because there is more than a remote likelihood that they will result in a financial statement misstatement that is more than inconsequential.

Choice 'a' is incorrect. Irregularities or illegal acts may not represent deficiencies in internal control (e.g., if such acts occur through collusion).

Choice 'c' is incorrect. Significant deficiencies do not necessarily involve violations of an entity's conflictof-interest policies.

Choice 'd' is incorrect. Interfering with the auditor's procedures would not constitute a significant deficiency, since such interference would not affect the financial statements.