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Systems and controls

Communicating deficiencies

ISA 265 Communicating Deficiencies in Internal Control to Those Charged with
Governance and Management requires the auditor to communicate deficiencies in
internal control to management.

Significant deficiencies should be communicated in writing to those charged with
governance.

Example 2

Report to management

Deficiency Consequence Recommendation

Credit checks are not This will result in Credit checks should be
performed for new irrecoverable debts performed for all new
customers. which will reduce profit customers and repeated
and cash flow. at regular intervals to
Sales may be made to ensure customers are
customers who are creditworthy.
unable to pay.

When the auditor reports deficiencies, it should be made clear that:

 The report is not a comprehensive list of deficiencies, but only those that have
come to light during normal audit procedures.

 The report is for the sole use of the company.

 No disclosure should be made to a third party without the written agreement of
the auditor.

 No responsibility is assumed to any other parties.

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