What do you mean by 'Deficiency in internal control' and 'Significant deficiency in internal control'?

CA Intermediate · Auditing and Ethics · PYQS · September 2025
What do you mean by 'Deficiency in internal control' and 'Significant deficiency in internal control'?

Suggested Answer and Working Notes:

SA 265 "Communicating Deficiencies in Internal Control to Those Charged with Governance and Management", defines the deficiency in internal control and significant deficiency in internal control. Deficiency in internal control – This exists when: - (i) A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis or (ii) A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing. Significant deficiency in internal control – A deficiency or combination of deficiencies in internal control that, in the auditor's professional judgment, is of sufficient importance to merit the attention of those charged with governance. The significance of a deficiency or a combination of deficiencies in internal control depends not only on whether a misstatement has actually occurred, but also on the likelihood that a misstatement could occur and the potential magnitude of the misstatement. Significant deficiencies may, therefore, exist even though the auditor has not identified misstatements during the audit.

Topics: Completion and Review

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