Internal Control—Required Communications Flashcards
What is Control Deficiency?
When the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis
What is Deficiency in Design?
When a control necessary to meet the control objective is missing, or when the control objective is not always met
What is Deficiency in Operation?
When a properly designed control does not operate as designed, or when the person performing the control does not have the authority or competence to effectively perform the control
What is Significant Deficiency?
A deficiency in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance
What is Material Weakness?
A deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis
When Evaluating Control Deficiencies what deficiencies must the auditor determine?
Are they significant deficiencies or material weaknesses
What Risk factors affect whether there is a reasonable possibility that a deficiency will result in a misstatement?
1 The nature of the accounts, classes of transactions, disclosures, and assertions involved;
2 The susceptibility of the related asset or liability to loss or fraud;
3 The subjectivity, complexity, or extent of judgment involved
4 The interaction or relationship of the control with other controls;
5 The interaction among the deficiencies
6 The possible future consequences of the deficiency.
When Communicating Identified Control Deficiencies what’s the required Timing?
Is best made by the “report release date” and should be made no later than 60 days following the report release date
What should written communication about significant deficiencies and material weaknesses state?
1 That the purpose of the audit was to express an opinion on the F/S
2 The auditor is not expressing an opinion on the effectiveness of internal control
3 The auditor’s consideration of internal control was not designed to identify all significant deficiencies or material weaknesses.
4 Include the definition of the terms material weakness and significant deficiency
5 Identify the matters that are considered to be material weaknesses and significant deficiencies
