Question

13. Distinguish between deficiencies in Internal Control & Significant deficiency in Internal Control and list examples of indicators of significant deficiencies in internal control

Answer 1

Deficiencies in Internal Control - The auditor may identify deficiencies in the company's internal control over financial reporting while doing audit of a financial statement of a comapny. A control deficiency exists when it cannot be prevented or detected misstatements on a timely basis by management or employees in the normal course of performing their assigned functions. Here the misstatements found in the financial statements are not so material or significant

Whereas , Significant deficiency in Internal Control is a combination of deficiencies, in internal control over financial reporting.Here the misstatements found in the financial statements are significant enough to merit attention by those responsible for oversight of the company's financial reporting.These deficiences are less severe than a material weakness.

Some examples of indicators of significant deficiencies in internal control are listed below-

• Inadequate design of controls over the preparation of the financial statements of the entity.
• significant loss or fraud of the related asset or liability.
• Evidence of an ineffective process in the entity's risk assessment, such as management’s failure to identify a risk of material misstatement that the auditor would expect the process of the entity’s risk assessment should have been identified.
• Evidence of an ineffective response to significant risks which was identified (for example,controls over such a risk was absence).
• Evidence of inability of the management to oversee the preparation of the financial statements.