ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management
During the audit of Tarn Components, the audit senior identifies that purchase orders above $50,000 are being approved by a single clerk, with no second review. Under ISA 265, which statement best describes how the auditor should treat this matter?
A control weakness such as single-person approval of large purchases is a deficiency in internal control. If the auditor judges it significant, ISA 265 requires timely written communication to those charged with governance. The absence of an identified misstatement does not remove the duty to report.
- AIt is a deficiency in internal control that must be communicated in writing to those charged with governance if the auditor judges it to be a significant deficiencyCorrect
- BIt need only be communicated orally to the clerk's supervisor, because ISA 265 does not allow written communication of control matters
- CIt must be included in the auditor's report as a key audit matter in every case
- DIt should be ignored if no misstatement was found in the financial statements
Explanation
ISA 265 requires the auditor to communicate significant deficiencies in internal control in writing on a timely basis to those charged with governance. Absence of an actual misstatement does not remove the deficiency, so ignoring it is wrong. Control deficiencies are not automatically key audit matters, and oral-only communication to a supervisor does not satisfy the standard.
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