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Care for Kids Inc.

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FASB Codification Case 10-6 Care For Kids Inc.

In the Care for Kids Inc. case the auditor should consider the likelihood and magnitude of a misstatement to determine if a deficiency, significant deficiency, or material weakness exists. According to SAS 115 (2011), “If the likelihood is more than remote, then consideration as a significant deficiency is triggered, again assuming that the effect of the deficiency is more than inconsequential. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.” If the auditor does determine that there is a misstatement he or she must inform the client in writing.
Once a control deficiency is identified, the auditor must determine whether the deficiency is a significant deficiency or material weakness. According to SAS 112 and the AICPA’s Audit Risk Alert (2011), defines the factors to consider, including the likelihood that a deficiency will continue and the magnitude of the misstatement or potential misstatement. Additional information that will be needed in the Care for Kids cases would be; (1) the nature of the financial statement accounts, disclosures, and assertions involved. (2) The susceptibility of the related assets or liabilities to loss or fraud. (3) The interaction or relationship of the control with other controls.
The American Institute of Certified Public Accountants (AICPA) issued the Statement on Auditing Standard (SAS) Number 114 (2011), The Auditor's Communication with Those Charged with Governance. The purpose Auditor's Communication with Those Charged with Governance is to ensure that communication between auditors and auditees is made at a more formal level and consistent throughout the audit.

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