ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management
During the audit of Kestrel Components Ltd, the audit senior identifies that the purchase ledger clerk can both create new suppliers and approve payments to them. The audit manager is drafting the management letter. Which of the following best describes the purpose of including this matter in the management letter?
The matter is included to inform management of an internal control deficiency, a lack of segregation of duties, so it can be fixed, and to evidence that the auditor communicated it as ISA 265 requires. It does not alter the opinion or shift control responsibility to the auditor.
- ATo report a deficiency in internal control to management so that it can be corrected, and to document that the auditor has communicated itCorrect
- BTo modify the audit opinion because the control weakness means the financial statements are materially misstated
- CTo transfer responsibility for designing internal controls from management to the auditor
- DTo satisfy the auditor's duty to report suspected fraud directly to the regulator
Explanation
ISA 265 requires the auditor to communicate deficiencies in internal control identified during the audit to management on a timely basis. The letter helps management improve controls and evidences the communication. A control deficiency does not by itself modify the opinion, and responsibility for internal control stays with management.
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