Industrial Holdings Inc. (IH), a public company, has been a

Industrial Holdings Inc. (IH), a public company, has been a client of Walker LLP for several years. Walker has completed the integrated audit of IH for the year ended December 31, 2022. In February 2022, IH upgraded to a new inventory management system that should make IH’s inventory recording more efficient and more paperless. The change to the new system required IH to make significant changes to internal controls over inventory recording. IH management has worked hard to make the needed changes to internal control and test the changes during the year. For example, in early April 2022, management identified a material weakness regarding the number of employees who had access to edit transactions in the new inventory system. Management quickly took steps to correct the weakness so that from late April through the rest of the year the control was effective.

The auditors conducted extensive controls testing on the new inventory management system in September and October 2022. Although three control deficiencies were identified, the auditors determined there was a remote possibility that a material misstatement would not be prevented, or detected and corrected, on a timely basis. The auditors concurred with management that the material weakness that was identified in early April was remediated and was no longer a material weakness.

Required

a. What type of opinion on the effectiveness of ICFR should the auditors issue? Draft the report.

b. Suppose management had not identified the material weakness in April. Instead, auditors identified the material weakness during their controls testing in October 2022. By year-end, management had not remediated the material weakness. What type of opinion on the effectiveness of ICFR should the auditors issue? Draft the report.

c. Suppose management had not identified the material weakness in April. Instead, auditors identified the material weakness during their controls testing in October 2022. Management corrected the material weakness in early November and auditors concurred that the material weakness was remediated. What type of opinion on the effectiveness of ICFR should the auditors issue? Defend your choice of opinion.

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