Compliance Reporting Practice Test

An issuer manufacturing company is audited under PCAOB standards, including an audit of internal control over financial reporting. The auditor identifies a control deficiency where management’s compliance monitoring over environmental regulations is not designed to identify violations that could lead to material remediation liabilities, and a recent violation has occurred. Management argues the control is “operational” and not relevant to internal control over financial reporting. Which compliance reporting action should the auditor take?

A nonissuer manufacturing company is undergoing a financial statement audit under AICPA auditing standards. During the audit, the auditor identifies that the company failed to file required quarterly payroll tax returns and has received a notice of assessment from the taxing authority; management has recorded no liability and has not disclosed the matter, asserting it is “not probable.” The potential penalties could be material, and the auditor has obtained the notice and correspondence indicating the assessment is enforceable. Which compliance reporting action should the auditor take?