1. Significant deficiencies are matters that come to an auditor's attention and should be communicated to an entity's audit committee because they represent:

A. material frauds perpetrated by high-level management.

B. internal control deficiencies that could adversely affect a company's ability to initiate, record, process, or report external financial statements reliably.

C. flagrant violations of the entity's documented conflict-of-interest policies.

D. intentional attempts by client personnel to limit the scope of the auditor's field work.

2. To be effective, an internal audit department must be independent of:

A. operating departments.

B. the accounting department.

C. both the operating and accounting departments

D. either operating or accounting department, but not both.