BROUGHT TO YOU BY:-

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