Abstracts from Au-C §265

Topics: Management, Internal control, Audit Pages: 2 (423 words) Published: April 19, 2013
To: Andy Auditor
From: Xiaoqi Chen
Date: March 26 2013
Subject: Abstracts from AU-C §265
AU-C §265 gives the follow definitions of deficiency in internal control, significant deficiency and material weakness. * Deficiency in internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. * Material weakness. A deficiency or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. * Significant deficiency. A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. AU-C §265 also claims that the auditor should communicate to management at an appropriate level of responsibility, on a timely basis. * in writing, significant deficiencies and material weaknesses that the auditor has communicated or intends to communicate to those charged with governance, unless it would be inappropriate to communicate directly to management in the circumstances. * in writing or orally, other deficiencies in internal control identified during the audit that have not been communicated to...
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