(a) Examples of matters the external auditor should consider in determining whether a deficiency in
internal controls is significant include:
– The likelihood of the deficiencies leading to material misstatements in the financial statements in the future.
– The susceptibility to loss or fraud of the related asset or liability.
– The subjectivity and complexity of determining estimated amounts.
– The financial statement amounts exposed to the deficiencies.
– The volume of activity that has occurred or could occur in the account balance or class of transactions exposed to the deficiency or deficiencies.
– The importance of the controls to the financial reporting process.
– The cause and frequency of the exceptions detected as a result of the deficiencies in the controls.
– The interaction of the deficiency with other deficiencies in internal control.
Tutorial note: ISA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management states that a significant deficiency in internal control is a deficiency or combination of deficiencies in internal control that, in the auditor’s professional judgement, is of sufficient importance to merit the attention of those charged with governance.
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