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SA 265: Communicating Deficiencies in Internal Control to TCWG and MGT, …
SA 265: Communicating Deficiencies in Internal Control to TCWG and MGT
Definitions
Deficiency in IC
Inability of IC to prevent, detect & correct misstatement, and
Absence of control necessary to prevent, detect & correct misstatement.
Significant Deficiencies in IC
A deficiency or combination in IC that, in the auditor's judgement, is of significant importance to merit the attention of TCWG.
Reporting when Deficiency in IC is identified
Determine whether individually or in combination they constitute significant deficiencies
Communicate in writing on timely basis
Shall also communicate to MGT of his responsibility, and
Sig. deficiencies in writing
Others orally or in writing
Content of Communication
Description of deficiencies
Explanation of their potential effect
Sufficient info. to explain that
Purpose of audit is to express an opinion
IC is evaluated to determine FAP
Deficiencies reported are only as noticed and we have not applied any AP to identify & report all deficiencies.
Significant Deficiencies in IC
Factors determining whether deficiency is significant
Likelihood to lead to MM in FS in future
Susceptibility to loss or fraud
Subjectivity & complexity of determining estimated amounts
FS amounts exposed to deficiencies
Volume of activity that has or could occur
Importance of control to FR process
Cause & frequency of exceptions detected
Indicators of Deficiencies
Evidence of ineffective aspects of CE
Entity's RAP absent/ineffective
Ineffective response to identified significant risk
Correction of prior period misstatement arising due to fraud or error
MGT's inability to oversee FS preparation
Misstatement detected by auditor's procedures were not prevented, or detected & corrected by entity's IC
MGT failure to implement appropriate remedial action
:memo: Unless, inappropriate, in auditor's professional judgement, in circumstances.