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Reports to those charged with governance

Communicating deficiencies in internal

controls

ISA 265 Communicating Deficiencies in Internal Control to Those Charged with
Governance and Management requires the auditor to communicate deficiencies that
are of sufficient importance to merit attention by the entity.

The auditor must distinguish between simple deficiencies, which do not require
communication, and significant ones that do.

Significant deficiencies are those which could have a material effect on the financial
statements or affect multiple balances.

The auditor communicates:

 A description of the deficiencies and their potential effects.

 An explanation of the purpose of the auditor (i.e. to express an opinion on the
financial statements, not to help redesign internal systems).

 An explanation of why consideration of internal control is relevant to the audit.

 An explanation that the matters being reported are only those identified during
the audit and considered to be significant enough to report.

As well as reporting to those charged with governance, the auditor should
communicate deficiencies to management on a timely basis.

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