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During the course of the audit, the audit team identified numerous deficiencies in internal control relating to
the sales system. The amounts exposed to the deficiencies were high and you have concluded that it is likely
that the deficiencies would result in material misstatements in the financial statements. A deficiency was
also identified in the purchases system but further investigation showed this to be a minor, isolated issue.
Which of the following statements is correct regarding the deficiencies which must be included in the report
to management?
The deficiencies identified in the sales system only
The deficiencies identified in the purchases system only
The deficiencies identified in the sales and purchases system
Neither the deficiencies identified in the sales system nor the purchases systemmam, the answer given is option 1. but my dubt is why not 3?
we can report all sufficient defficiencies which can merit mgmts attention to mgmt right? had it been to TCWG then only significant ones must be communicated..
so what is the trick here? and is the management report not only addressed to mgmt alone? Is it to TCWG aswell?The questions asks “Which . . . MUST BE included . . . ”
The sales deficiency is described in such a way that it is clearly significant – see page 74 of the notes.
Ask yourself – what purpose does it serve to report to management something that was “minor” and a “one off”? What sensible recommendation can the auditor make to address the unlikely consequences of something that isn’t actually a problem? I suggest none – so not worth reporting. If the auditor were to report everything, the reader wouldn’t be able “to see the wood for the trees”.
Management = person(s) with executive responsibility for day-to-day operations. Management and TCWG are not necessarily distinct – an “owner-manager” will be responsible for the governance of his company – a board of executive directors will be responsible for governance where there is no other person(s) or body with a “higher” oversight role.
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