Page 285 - COSO Guidance Book

Exhibit 7-1: Example of a written communication regarding significant
deficiencies and material weaknesses identified during an audit of financial

statements (continued)
[Describe the significant deficiencies that were identified and an explanation of their potential
effects.]

[If the auditor is communicating significant deficiencies and did not identify any material
weaknesses, the auditor may state that none of the identified significant deficiencies are
considered to be material weaknesses.]

This communication is intended solely for the information and use of management, [identify
the body or individuals charged with governance], others within the organization, and [identify
any governmental authorities to which the auditor is required to report] and is not intended to
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be, and should not be, used by anyone other than these specified parties.

Exhibit 7-2: Example of a written communication indicating that no material
weaknesses were identified during the audit of a not-for-profit organization
To Management and [identify the body or individuals charged with governance, such as the
entity’s Board of Directors] of NPO Organization

In planning and performing our audit of the financial statements of NPO Organization (the
“Organization”) as of and for the year ended December 31, 20XX, in accordance with auditing
standards generally accepted in the United States of America, we considered the
Organization’s internal control over financial reporting (internal control) as a basis for
designing audit procedures that are appropriate in the circumstances for the purpose of
expressing our opinion on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Organization’s internal control. Accordingly, we do not
express an opinion on the effectiveness of the Organization’s internal control.

A deficiency in internal control exists 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 and correct, misstatements on a timely basis. A material
weakness is a deficiency, or a combination of deficiencies, 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.

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Paragraph .13 of AU-C section 315. Paragraphs .A61–.A67 of AU-C section 315 provide guidance on obtaining an
understanding of internal control relevant to the audit.

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