ISA 265 - Communicating Deficiencies in Internal Control to TCWG and Management

Question 1

ISA 265: Communicating Deficiencies in Internal Control to TCWG and Management:

Answer 1

Any Deficiency in Internal Control to be communicated appropriately to TCWG / Management.

Internal Control:
> Process designed by the Management to ensure smooth functioning and to meet objective of the Entity.

> Auditor will be concerned mainly with the Internal Control that impacts the Financial Statements.

> To carry out Audit Procedures, Internal Control System is checked by Auditor.
Auditor is Not responsible to give Opinion on effectiveness of Internal Control System.

Question 2

ISA 265: Compliance Procedure:

Answer 2

> Is Internal Control designed properly?
Is it operating efficiently?
Are they effective throughout the year?

What are the two Deficiencies being talked about by the Standard?
1) Ineffectiveness in Control Environment
2) Ineffectiveness/ absence of Entity’s Risk Assessment Process.

Question 3

ISA 265: Deficiency in Internal Control

Answer 3

Significant Deficiency:
> Communicate with Management.

Other Deficiency:
> Communicate with Management.

Question 4

ISA 265: Content of Letter of Weakness

Answer 4

Letter of Weakness:
> A significant weakness in Internal Control which the Auditor is communicating to TCWG and management.

> Description and Impact of the Deficiency.
Declaration/ Clarification on context of reporting.
Auditor duty is to express opinion on Financial Statements.
Internal Control is checked to design Audit Procedure and Auditor is Not giving any Opinion on effectiveness of Internal Control.
Deficiency reported are only limited to those observed during the Audit.

Question 5

ISA 265: Indicators of Significant Deficiency:

Answer 5

> Ineffectiveness in Control Environment.
Ineffectiveness/ absence of Entity’s Risk Assessment Process.
Management fails to mitigate the Deficiency informed.

> How much of Substantive Procedures should be taken, depends on the state of the Internal Control.
The weaker or bad the Internal Control System, the higher or more the Substantive Procedures taken.
The stronger or good the Internal Control System is, the lower or less the Substantive Procedures taken.

> Auditor is Not responsible to give any Opinion on effectiveness of Internal Control.
Auditor is only communicating the Deficiency as part of the responsibility according to Standard 265.
Auditor restrict himself or herself only to the Opinion on Financial Statements.