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

While auditing Vasudha Textiles Ltd, CA Rohan finds that management has no process at all for identifying business risks, although a company of its size and complexity would ordinarily have one. Which conclusion is most appropriate under SA 265?

The absence of a risk assessment process where one would ordinarily be expected is an indicator of a significant deficiency in internal control under SA 265. The auditor should treat it as such and communicate it, whether or not a misstatement has been found.

  1. AThe absence of a risk assessment process where one would ordinarily be expected is an indicator of a significant deficiency in internal controlCorrect
  2. BIt is only an administrative lapse and need not be communicated if no misstatement is found
  3. CIt is a deficiency that should be communicated only to the Registrar of Companies
  4. DIt is relevant only to the audit of listed entities and not to other companies

Explanation

SA 265 lists the absence of a risk assessment process within the entity, where such a process would ordinarily be expected, as an indicator of a significant deficiency. Option B is wrong because the auditor's communication duty does not depend on a misstatement having been found.

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