You have completed the audit of ABC Ltd for the year ended October 31, 2019.
Required:
i) Outline the procedures for communicating deficiencies in internal controls to those charged with governance and management. (6 marks)
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Procedures relevant to communicating deficiencies in internal control to those charged with governance are as follows:
- Deficiencies discovered during the audit are first noted on the relevant section of the audit programme and initially discussed with the auditees operatives.
- The deficiencies are summary on the file divider for management letter.
- A formal discussion is held with management for their responses.
- The deficiencies together with management responses are used to write a formal letter to those charged with governance and management.
- Management is requested to acknowledge receipt of the letter and to indicate actions already taken or intended to be taken to rectify the deficiencies and/ or prevent their reoccurrence.
(4 points @ 1.5 marks =6 marks)
ii) Illustrate how the deficiencies are reported (4 marks)
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- Internal control cycle where deficiency has been discovered with a brief description of the actual deficiency.
- The effect of the deficiency on the operations of the business and / or the financial statements.
- Possible management response.
- Recommendations to rectify the deficiency and /or prevent future reoccurrence.
(4 points @ 1.5 marks =6 marks)