Ken Smith, the partner in charge of the audit of Houghton Enterprises, a private entity, identified the following significant deficiencies during the audit of the December 31, 2021, financial statements:

1. Controls for granting credit to new customers were not adequate. In particular, the credit department did not adequately check the credit-worthiness of customers with an outside credit agency.

2. There were inadequate physical safeguards over the company’s inventory. No safeguards prevented employees from stealing high-value inventory parts.

Required:

a. Draft the required communications to the management of Houghton Enterprises, assuming that both items are significant deficiencies.

b. Assume that Smith determined that the second item was a material weakness. How would the required communication change?