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Comminicating Internal control defficiencies to those charged with governance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Comminicating Internal control defficiencies to those charged with governance

  • This topic has 5 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • August 16, 2016 at 10:29 pm #333689
    juve
    Participant
    • Topics: 59
    • Replies: 77
    • ☆☆

    Hello dear tutor

    I hope that you are well….

    My question is about one of the matters which should be communicated to those charged with governance ie Internal control defficiencies as folows by comparising 2 questions:

    -in Dec 2010-Q5b it is said that those Internal Control deficiencies which are SIGNIFICANT should be communicated to those charged with governance as soon as possible(and for those which are not significant,the firm should consider whether it is important to be brought to their attention or not)

    But-in June 2008-Q5aii it is said that internal control weaknesses must be communicated to those charged with governance REGARDLESS of materiality(ie all defficiencies should be communicated to them)….

    Q:So which one is correct?should we communicate to those charged with governance ALL internal control defficiencies or MATERIAL ones?(and for insignificant ones if firm decide that it is important)

    August 17, 2016 at 9:39 am #333750
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Need to find a balance here

    The management letter, recommendations letter, weakness letter (whatever you want to call it) should be comprehensive in identifying control weaknesses discovered during the course of the audit and those charged with governance should receive a copy

    Additionally, the auditor will wish to meet with the audit committee to discuss the contents of that letter.

    Furthermore, in the meeting with those charged with governance, the auditor will with to bring to their attention those key audit matters that the auditor feels have impacted on the conduct of the audit

    I don’t honestly believe that a marker will fail to give you a mark whichever route you choose but I DO believe that you can cover all bases if you follow my own suggestions

    What do you think?

    August 17, 2016 at 11:03 am #333766
    juve
    Participant
    • Topics: 59
    • Replies: 77
    • ☆☆

    I dont know what should I do because these are 2 ACCA’s questions but answers are completely different…

    In one of them(june 2008) examiner clearly announces the effect of weaknesses and also level of net asset and in my opinion intentionally the effect is IMMATERIAL,and so the students said it is not material and it shouldnt be communicated to those charged with governance BUT examiner said:auditor should communicate defficiencies REGARDLESS of materiality…

    But in the second one(Dec 2010) examiner said that auditor MUST consider the SIGNIFICANCE of the defficiencies first and then communicate the significant(ie in my opinion material)ones…

    So it seems that there are 2 CONTRADICTORY answers in ACCA!…

    I have studied your advice and you said that I can select each of these routes….this means that both routes are correct(while they are compeletely different!!)…

    By the way I will select the route in Dec 2010 as it is after june 2008(and maybe more updated than june 2008!!!)BUT I donnot get the REAL points and basis in your suggestion(unfortuanetly)

    So please explain your suggestion MORE(with specific recommendation for exam)if you have time….

    Thank you again

    August 17, 2016 at 7:50 pm #333817
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    By sending a weakness letter to those charged with governance as well as to the e executive board, the auditor will have notified those in control of ALL weaknesses that the auditor has discovered during the course of the audit

    In addition, in discussions with the audit committee, the auditor will highlight those weaknesses that the auditor considers to be of great importance

    So this approach ensures that ALL weaknesses are brought to the attention of both executive and non-executive directors – whatever their apparent significance

    I’m not going to try to find the 2008 (nor the 2010) exams but let me hazard a couple of guesses

    1 – the wording of the scenario is not the same (obviously)

    2 – and probably the wording of the question requirement is also different

    3 – the 2008 scenario involved fraud whereas the 2010 one didn’t

    You’re correct to opt for the more recent answer but even so, the auditor now has the requirement to identify Key Audit Matters in the audit report so this problem that you’re struggling with almost becomes no problem at all.

    If it’s material it will be brought to the attention of the readers by means of a KAM paragraph

    If it’s fraud, it will be brought to the attention of the board, no matter how apparently insignificant

    If it’s not material and not fraud, it will still be brought to management’s attention through the weakness letter

    Is that better?

    August 17, 2016 at 9:14 pm #333831
    juve
    Participant
    • Topics: 59
    • Replies: 77
    • ☆☆

    I have studied your GUESSES and take a look at those 2 questions:

    As you guess, in june 2008-Q5 Inernal control defficienies led to IMMATERIAL FRAUD( lack of authorisation for purchase of equipment)….AND so as you said any internal control weaknesses which led to FRAUD should be communicated to those charged with governance REGARDLESS of materiality…

    And again as you guess in Dec 2010-Q5 internal control defficiencies led to ERROR and as you said any internal control weaknesses led to MATERIAL ERROR should be communicated to those charged with governance on a timely basis(and now we should mention to this in KAM as you said)….and if weaknesses led to IMMATERIAL ERROR,they should be communicated to those charged with governance again as you said( but No need to be mentioned in KAM)…

    It was a very helpful and excellent reply…

    Thanks alot

    August 17, 2016 at 9:45 pm #333835
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Phew! That’s a relief 🙂

    Glad that you’ve ironed out those glitches 🙂

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