Which of the following matters would an auditor most likely consider to be a significant deficiency in internal control to be communicated to management and those charged with governance?
a.Management's current plans to reduce its ownership equity in the entity.
b.Recurring operating losses that may indicate going concern problems.
c.Evidence of a lack of objectivity by those responsible for accounting decisions.
d.Management's failure to renegotiate unfavorable long-term purchase commitments.
Answer:C
Choice "C" is correct. A lack of objectivity by those responsible for accounting decisions represents a significant internal control deficiency because it may result in financial statements that are biased rather than being presented fairly. This is a matter that would merit attention by those charged with governance.
Choice "d" is incorrect. Management's failure to renegotiate unfavorable long-term purchase commitments does not represent a significant deficiency in internal control.
Choice "b" is incorrect. Going concern problems do not represent a significant deficiency in internal control.
Choice "a" is incorrect. Management's plan to reduce its ownership equity in the entity does not represent a significant deficiency in internal control.