ISA 265 — Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

ISA 265 DEALS with the auditor’s responsibility to COMMUNICATE appropriately to those charged with governance and Management deficiencies in internal control that the auditor has identified in an ‘Audit’ of Financial Statements.

Table of Contents

ISA 265 – Introduction
- 1. Scope of this ISA
- 2. Effective Date
ISA 265 – Objective
ISA 265 – Definitions
- 1. Deficiency in Internal Control
- 2. Significant Deficiency in Internal Control
ISA 265 – Requirements
Synopsis

ISA 265 – Introduction

1. Scope of this ISA

It does NOT Impose ‘Additional Responsibilities‘ on the auditor regarding obtaining an understanding of internal control and designing and performing tests of control over and above the Requirements of ISA 315 and ISA 330.

2. Effective Date

This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2009.

ISA 265 – Objective

The Objective of the ‘Auditor’ is to COMMUNICATE appropriately to those charged with governance and Management deficiencies in internal control that the auditor has identified during the audit and that in the auditor’s professional Judgment are of sufficient importance to Merit their respective attention.

ISA 265 – Definitions

1. Deficiency in Internal Control

This Exists when:

A control is designed, Implemented or operated in such a way that it is UNABLE to prevent or detect and correct Misstatements in the ‘Financial Statements’ on a timely basis; OR
A control necessary to prevent or detect and correct Misstatements in the financial statements on a timely basis is MISSING.

2. Significant Deficiency in Internal Control

A deficiency or combination of deficiencies that are of such importance to Merit the attention of those charged with governance.

ISA 265 – Requirements

The auditor shall DETERMINE whether on the basis of the audit work performed, the auditor has identified one or More deficiencies in Internal Control.

If the auditor has identified one or More deficiencies in internal control, the auditor shall DETERMINE whether individually or in combination they constitute SIGNIFICANT deficiencies.

The ‘Auditor’ shall COMMUNICATE in writing to those charged with governance on a timely basis.

The ‘Auditor’ shall also COMMUNICATE to the Management at an appropriate level of responsibility on a timely basis:

In writing, significant deficiencies in internal control; AND
Other deficiencies in internal control identified during the audit.

The auditor shall INCLUDE in the ‘Written Communication’:

(a) A description of the deficiencies and an explanation of their potential effects; AND

(b) Sufficient information to enable those charged with governance and Management to understand the context.
In particular, the auditor shall EXPLAIN that:
– The purpose of the audit;
– The audit included consideration of internal control; AND
– The Matters being reported are limited to those deficiencies that the auditor has identified during the audit.

Synopsis

ISA 265 ‘Communicating Deficiencies in Internal Control to Those Charged with Governance and Management‘ DEALS with the auditor’s responsibility to communicate appropriately to those charged with governance and Management deficiencies in internal control that the auditor has identified in an ‘Audit‘ of Financial Statements.

[200-299] General Principles and Responsibilities