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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

During the audit of Anand Pharma Ltd., a listed company, auditor Kiran identifies a deficiency in internal control over inventory counting that she judges to be a significant deficiency. Under SA 265 and the Companies Act, 2013, what is the correct response?

Kiran must communicate the significant deficiency in writing to those charged with governance on a timely basis, as SA 265 requires. Oral mention to staff is inadequate, delay is improper, and a report qualification is not automatic unless the deficiency leads to a misstatement or other modification ground.

  1. ACommunicate it in writing on a timely basis to those charged with governanceCorrect
  2. BCommunicate it only orally to the storekeeper
  3. CWait to report it until the next year's audit
  4. DMention it only in the audit report as a qualification in every case

Explanation

SA 265 requires significant deficiencies to be communicated in writing, on a timely basis, to those charged with governance. It does not require automatic qualification of the audit report, and oral communication to a junior employee is inadequate. Delaying to the next year defeats timeliness.

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