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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management

Auditors of Brightwater Foods identified a deficiency: bank reconciliations are prepared monthly but are not independently reviewed, and the finance director said she would 'look at it next year'. The deficiency could allow a material misstatement to go undetected, and the auditor has concluded that it is a significant deficiency. Under ISA 265, what must the auditor do?

The auditor must communicate the significant deficiency in writing to those charged with governance on a timely basis. ISA 265 does not make this depend on management's awareness, planned action, or on an actual misstatement having occurred.

  1. ACommunicate it in writing to those charged with governance on a timely basisCorrect
  2. BCommunicate it orally to management only, since management already knows
  3. CWait until the next audit to confirm whether it has been remedied before communicating
  4. DCommunicate it only if it resulted in an actual misstatement in the financial statements

Explanation

ISA 265 requires significant deficiencies to be communicated in writing to those charged with governance on a timely basis. Management's awareness or intention does not remove this duty, and the deficiency need not have caused an actual misstatement. Oral communication to management alone is insufficient.

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