Auditors are required to obtain an understanding of internal control relevant to the audit when identifying and assessing its effectiveness and risk…

As per SA 265, “Communicating Deficiencies in Internal Control to Those Charged with Governance and Management", Indicators of significant deficiencies in internal control include, for example: (i) Evidence of ineffective aspects of the control environment, such as: - Indications that significant transactions in which management is financially interested are not appropriately scrutinised by those charged with governance.Identification of management fraud, whether or not material, that was not prevented by the entity's internal control.Management's failure to implement appropriate remedial action on significant deficiencies previously communicated. (ii) Absence of a risk assessment process within the entity where such a process would ordinarily be expected to have been established. (iii) Evidence of an ineffective entity risk assessment process, such as management's failure to identify a risk of material misstatement that the auditor would expect the entity's risk assessment process to have identified. (iv) Evidence of an ineffective response to identified significant risks (e.g., absence of controls over such a risk). (v) Misstatements detected by the auditor's procedures that were not prevented, or detected and corrected, by the entity's internal control. (vi) Disclosure of a material misstatement due to error or fraud as prior period items in the current year's Statement of Profit and Loss. (vii) Evidence of management's inability to oversee the preparation of the financial statements.