ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management
Kestrel Logistics' auditor identifies two deficiencies: (1) bank reconciliations are prepared monthly but not independently reviewed, and the account balance is material; (2) staff do not always file delivery notes in date order, which has no effect on records. Which approach is consistent with ISA 265?
The unreviewed bank reconciliation on a material balance is likely a significant deficiency and goes in writing to those charged with governance. The trivial filing problem is reported to management at an appropriate level. ISA 265 differentiates by significance rather than requiring everything to go to the board.
- AReport both in writing to those charged with governance, since all deficiencies must be reported to them
- BReport neither, since no misstatement has been found
- CReport (1) in writing to those charged with governance as a likely significant deficiency, and communicate (2) to management at an appropriate level, as it is of lesser importanceCorrect
- DReport (2) to those charged with governance and (1) orally to management
Explanation
ISA 265 requires written communication of significant deficiencies to those charged with governance, and communication of other deficiencies to management where the auditor judges it of sufficient importance. The unreviewed reconciliation on a material balance is likely significant. The filing issue is minor, so management-level communication suffices. Reporting all deficiencies to those charged with governance is not required.
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