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SAsSA 265 -COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO
THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT
SA 450 - EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT
SA 720 -THE AUDITOR’S RESPONSIBILITY IN RELATION TOOTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FS
TYPE OF STANDARD NUMERICAL SERIES
STANDARDS ON QUALITY CONTROL 01-99
STANDARDS ON AUDITING 100-999
STANDARDS ON REVIEW ENGAGEMENTS 2000-2699
STANDARDS ON ASSURANCE ENGAGEMENTS 3000-3699
RELATED SERVICES 4000-4699
Introductory Matters 100 – 199
General Principles and Responsibilities 200 – 299
Risk Assessment &Response to Assessed Risk 300 – 499
Audit Evidence 500 - 599
Using Work of Others 600 – 699
Audit Conclusions and Reporting 700 – 799
Specialised Areas 800 – 899
OBJECTIVE – ◦ Communication of matters◦ Not Scope
DEFINITION◦ Deficiency in Internal Control◦ Significant Deficiency in Internal COntrol
1. Identified deficiency in Internal Controls2. Whether Significant?3. Communicate in writing on timely basis to
Governing Body (GB)4. Communicate to Management, unless
irrelevant
To include:◦ Purpose of audit◦ Internal control not part of audit, checked to identify
quantum of audit procedures◦ No comprehensive check made for such non-compliance
Deficiency – ◦ Ineffective control or non-existing control
Deficiencies Includes-◦ possibility of misstatements to happen
Indicators of deficiency – ◦ Weak control environment, management
frauds, non-remedial measures, absence of risk assessment process, misstatements, prior period items, ineffective control on FS
FACTORS1. Nature of Entity2. Size and Complexity of Entity3. Nature and Size of deficiencies4. Legal requirements
Discrepancies may be insignificant individually but not collectively
In writing or oral followed by in writing Timing – In advance, such that the
addressee, if required, can accordingly respond on it
To communicate in writing even if reported in previous year
Insignificant discrepancies not to be reported to GB
Communicate only if management not involved SIGNIFICANT DEFICIENCIES
◦ In writing or oral followed by writing◦ To be reported even if reported in previous year and
still uncorrected
INSIGNIFICANT DEFICIENCIES◦ In writing or oral◦ Not to be reported if reported in previous year and
even if still uncorrected
If required suggestions may also be included in report
EVALUATION OF MISSTATEMENTS
IDENTIFIED DURING THE AUDIT
Misstatement – A difference between the amounts, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.
Misstatements can arise from error or fraud.
Uncorrected misstatements – Misstatements that the auditor has accumulated during the audit and that have not been corrected.
Accumulation of Uncorrected Misstatements Consideration of misstatements as the Audit
progresses Communication and Correction of
Misstatements Evaluating effect of uncorrected
misstatements Communication with Those Charged with
Governance Written Representation and Documentation
Avoid immaterial misstatements
TYPES OF MISSTATEMENT Factual Mistatements Judgmental Mistatements Projected Mistatements
Need for revision of Nature, Timing and Extent (NTE) of Audit Procedures (AP) to be applied
Communicate to management to provide time for taking remedial action
COMMUNICATION◦ Timely communication◦ Check any Legal restrictions to communicate
Quantification and Projection Impact on other areas Materiality Levels Circumstances effecting evaluation –
◦ Regulatory environment, Debt convenants, Ratio, Increases management on managerial remueration / dividend, etc
In writing Overall impact When management and governing body
same report to management sufficient
Written Representations & Documentation
THE AUDITOR’S RESPONSIBILITY IN RELATION TOOTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED
FINANCIAL STATEMENTS
SCOPE - Auditor not responsible to check other information but for credibility he may read other information
OBJECTIVE – Develop Auditor’s response with respect to the documents in the report
(a) Other information – Financial and non-financial information (other than the financial statements and the auditor’s report thereon) which is included, either by law, regulation or custom, in a document containing audited financial statements and the auditor’s report thereon.
(b) Inconsistency – Other information that contradicts information contained in the audited financial statements. A material inconsistency may raise doubt about the audit conclusions drawn from audit evidence previously obtained and, possibly, about the basis for the auditor’s opinion on the financial statements.
(c) Misstatement of fact – Other information that is unrelated to matters appearing in the audited financial statements that is incorrectly stated or presented. A material misstatement of fact may undermine the credibility of the document containing audited financial statements.
SEARCH◦ Auditor should arrange and read other
information in advance like Management’s report, Financial summaries, Ratios, etc
RESPOND WHEN INCONSITENCIES IDENTIFIED◦ If change needed in Auditor’s report – Proceed◦ If change required in FS and Management refuses
– Report to GB, Add separate para in Auditor’s report or withdraw, if permitted
◦ If required, expert opinion may be recommended