AA – Dec 2022 – L2 – Q5e – Audit and Assurance Risk Environment

Lists four factors an auditor may consider when determining whether deficiencies in internal control are significant.

Question

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.

Required:
State FOUR (4) matters that an Auditor may consider in determining whether a deficiency or combination of deficiencies in internal control constitutes a significant deficiency.

Answer

Matters the auditor may consider in determining the significance of a deficiency:

The likelihood of the deficiency leading to material misstatements in the future.
The susceptibility to loss or fraud of the related asset or liability.
The subjectivity and complexity involved in determining estimated amounts like fair value.
The volume of activity in the account balance or transaction class exposed to the deficiency.

Tags: Auditor's Role, Corporate Governance, Deficiency, Internal Control, Risk Assessment
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: DEC 2022

Uploader: Theophilus