Definition
For purposes of the ISAs, the following terms have the meanings attributed below:
“Deficiency in internal control – This exists when:
- A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis; or
- A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing.”
Requirements
- The auditor shall identify the deficiencies in the internal control of an entity on the basis of audit work performed.
- After finding the one or more than one deficiencies in the internal control of entity the auditor shall determine whether the deficiency found in the internal control is individually significant or in aggregate.
- The significant deficiency found during audit individually or in aggregate in the internal control shall be communicated by the auditor in writing to Those Charged with Governance. This communication will be made on timely basis.
The following shall also be communicated to management at an appropriate level of responsibility on a timely basis:
- The auditor shall communicate the significant deficiency in the internal control to the management in some circumstances which the auditor has communicated or has intention to communicate. But the auditor will do so if it Is not inappropriate to communicate to the management and
- Other deficiencies in internal control identified during the audit that have not been communicated to management by other parties and that, in the auditor’s professional judgment, are of sufficient importance to merit management’s attention.
The following shall be included in the auditor written communication of significant deficiencies in internal control:
i)The auditor shall include the effects and the description of significant deficiencies; and
- ii) Shall further include sufficient information that is required for the better understanding of the context of the communication for those charged with governance and manage. The auditor shall also explain that:
- The purpose of the audit was for the auditor to express an opinion on the financial statements;
- The audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control; and
- The auditor shall report only that matter in respect of deficiencies that are actually identified during the course of audit and that is concluded by the auditor sufficient be reported to those charged with governance.
