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CA Final · Advanced Auditing, Assurance and Professional Ethics · Materiality, Risk Assessment and Internal Control

Raghav & Co. is auditing Sundaram Pharma Ltd. Last year the auditor communicated a significant deficiency in inventory controls to the board. This year the auditor finds that management has taken no remedial action, and no reason has been given. What is the most appropriate conclusion under SA 265?

Management's failure to implement appropriate remedial action on a significant deficiency already communicated is itself an indicator of a significant deficiency in the control environment under SA 265. The auditor should evaluate the matter and communicate it again rather than treat it as closed.

  1. AThe failure to implement remedial action on a previously communicated significant deficiency is itself an indicator of a significant deficiency, relating to the control environmentCorrect
  2. BThe matter is closed because it was already communicated once, so no further evaluation is needed
  3. CThe matter should be treated only as a management-letter point and not escalated
  4. DThe auditor should disclaim an opinion automatically

Explanation

SA 265 lists management's failure to implement appropriate remedial action on significant deficiencies previously communicated as an indicator of ineffective aspects of the control environment. This does not lead to an automatic disclaimer. Prior communication does not remove the need to evaluate the matter again.

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