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Audit International Auditing Standards

ISA 265 Summary : Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

ISA 3265

ISA 265 Summary : Communicating deficiencies in internal control to those charged with governance and management

ISA 265 Definitions

Deficiency in Internal control – definition

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.

Significant deficiency in internal control – definition

A deficiency or combination of deficiencies in internal control that, in the auditor’s professional judgement, is of sufficient importance to merit the attention of those charged with governance.

ISA 265 Effective date 15 December 2009

ISA 265 Scope

ISA 265 deals with the auditor’s responsibility to communicate appropriately to those charged with governance and management deficiencies in internal control that the auditor has identified in an audit of financial statements.

ISA 265 Objective

The objective of the auditor is to communicate appropriately to those charged with governance and management deficiencies in internal control that the auditor has identified during the audit and that, in the auditor’s professional judgement, are of sufficient importance to merit their respective attentions.

ISA 265 Requirements

  • Communicate significant deficiency identified during the course of audit to those charged with governance on timely basis.
  • Also communicate in writing to an appropriate level of management significant deficiencies in internal control that the auditor has communicated or intends to communicate to those charged with governance, unless it would be inappropriate to communicate directly to management in the circumstances.
  • Also communicate in writing to an appropriate level of management 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 judgement are of sufficient importance to merit management’s attention.
  • Include following in the written communication;
    • A description of the deficiencies and an explanation of their potential effects;
    • 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 matters being reported are limited to those deficiencies that the auditor has identified during the audit and that the auditor has concluded are of sufficient importance to merit being reported to those charged with governance.