ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management
In the audit of Tamarind Retail plc, the auditor found that a deficiency in the inventory count controls was reported in last year's management letter. Management did not act on it, and this year it is still unresolved. The auditor concluded that the deficiency does not by itself require a modified opinion, as substantive procedures obtained sufficient evidence over inventory. What is the most appropriate course of action regarding the management letter?
The auditor should report the deficiency again, stating that it remains unremedied, and communicate it in writing to those charged with governance if it is significant. Ignored recommendations do not by themselves modify the opinion, and omitting the point because it was reported before is inappropriate.
- AOmit the matter because it was already reported last year
- BReport it again, noting that it remains unremedied, and consider whether it should go to those charged with governance in writing if significantCorrect
- CModify the audit opinion because management ignored the earlier recommendation
- DReport it only to the external regulator since management has shown unwillingness to act
Explanation
ISA 265 notes that previously communicated deficiencies that remain uncorrected may need to be communicated again, and significant deficiencies must go in writing to those charged with governance. Failure to act on a recommendation does not itself modify the opinion when sufficient evidence was obtained by substantive work. There is no duty to report to a regulator purely because management did not act.
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