Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed?
a.Internal control activities requiring segregation of duties are rarely monitored by management.
b.There is a substantial risk of intentional misapplication of accounting principles.
c.Management is dominated by one person who is also the majority stockholder.
d.Management fails to modify prescribed internal controls for changes in information technology.
Explanation
Choice "b" is correct. Intentional misapplication of accounting principles would indicate that management lacks integrity and as a result, the auditor might conclude that a financial statement audit cannot be performed.
Choice "d" is incorrect. Management's failure to modify prescribed internal controls for changes in information technology would preclude the auditor from relying on those controls but would not prevent the auditor from performing a financial statement audit.
Choice "a" is incorrect. If management rarely monitors segregation of duties, the auditor would not rely on that particular control, but this would not prevent the auditor from performing a financial statement audit.
Choice "c" is incorrect. If management is dominated by one person who is also the majority stockholder, the risk of fraudulent financial reporting is increased, but this would not preclude the auditor from performing a financial statement audit.
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