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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management

While auditing Verano Retail, the auditor reported in writing a significant deficiency over journal entry authorisation to those charged with governance in the prior year. This year, the deficiency remains uncorrected, and management has decided, after a cost-benefit analysis, not to remediate it. What should the auditor do under ISA 265?

The auditor should consider repeating the communication, or referring to the earlier one, so those charged with governance remain aware, and should reassess risks of material misstatement in light of the unremedied deficiency. Neither withdrawal nor opinion modification follows automatically from management choosing not to act.

  1. AWithdraw from the engagement, because management has not accepted the recommendation
  2. BNot communicate it again, since it was reported previously and the auditor's duty is discharged
  3. CModify the audit opinion because the deficiency remains unremedied
  4. DConsider whether to repeat the communication, or otherwise ensure that those charged with governance are aware, and consider the effect on the current audit risk assessmentCorrect

Explanation

ISA 265 notes that if previously communicated significant deficiencies remain unremedied, the auditor may repeat the communication or refer to the earlier one, and must in any case consider the implications for current-year risk assessment and procedures. A management decision not to remediate does not by itself justify withdrawal or modification. Silence is inappropriate because the issue persists and still affects risk.

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