UNIVERSITY OF CAPE COAST

COLLEGE OF EDUCATION STUDIES

FACULTY OF HUMANITIES AND SOCIAL SCIENCE EDUCATION

DEPARTMENT OF BUSINESS& SOCIAL SCIENCE EDUCATION

COURSE NAME: AUDITING

COURSE CODE: EMG 414

LECTURER NAME: MR. ROBERT OFORI ABOSOMPIM

INDEX NUMBERS:

EH/ACT/19/0040

EH/ACT/19/0039

EH/ACT/19/0038

EH/ACT/19/0041

EH/ACT/19/0042

QUESTION:
Summary on international standard on auditing 265: communicating deficiencies in
internal control to those charged with governance and management.
INTERNATIONAL STANDARD ON AUDITING 265: COMMUNICATING DEFICIENCIES IN
INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT

ISA 265 – Introduction

1.Scope of this IAS
IAS 265 deals with the auditor’s responsibility to COMMUNICATE appropriately to those
charged with governance and management deficiencies in internal control that the auditor has
identified in an audit of financial statements
This ISA does not impose additional responsibilities on the auditor regarding obtaining an
understanding of internal control and designing and performing tests of controls over and above
the requirements of ISA 315 and ISA 330.
2. Effective Date
This ISA is effective for audits of financial statements for periods beginning on or after
December 15, 2009.
ISA 265 – Objective
The objective of the auditor is to communicate appropriately to those charged with governance
and management deficiencies in internal control that the auditor has identified during the audit
and that, in the auditor’s professional judgment, are of sufficient importance to merit their
respective attentions.
IAS 265-Definitions
For purposes of the ISAs, the following terms have the meanings attributed below:
1. Deficiency in internal control
This exits when:
 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
 A control necessary to prevent or detect and correct misstatements in the financial
statements on a timely basis is MISSING.

2. Significant Deficiency in Internal Control

A deficiency or combination of deficiencies that are of such importance to merit the
attention of those charged with governance.
ISA 265 – Requirements
The standard requires auditors to communicate significant deficiencies and material weaknesses
in internal control identified during the audit to those charged with governance and management.
The communication should include: the nature of the deficiency, its potential impact on the
financial statements, and any recommendations for improvement.
The auditor shall DETERMINE whether on the basis of the audit work performed, the auditor
has identified one or more deficiencies in internal control.
If the auditor has identified one or more deficiencies in internal control, the auditor shall
DETERMINE whether individually or in combination they constitute SIGNIFICANT
deficiencies.
The auditor shall COMMUNICATE in writing to those charged with governance on a timely
basis.
The auditor shall also COMMUNICATE to the management at an appropriate level of
responsibility on a timely basis:
 In writing, significant deficiencies in internal control; AND
 Other deficiencies in internal control identified during the audit.
The auditor shall INCLUDE in the written communication:
(a) A description of the deficiencies and an explanation of their potential effects; AND
(b) Sufficient information to enable those charged with governance and management to
understand the context.
In particular, the auditor shall EXPLAIN that:
– The purpose of the audit;
– The audit included consideration of internal control; AND
– The matters being reported are limited to those deficiencies that the auditor has identified
during the audit.
Significant Deficiencies in Internal Control
ISA 265 highlights the need for auditors to exercise professional judgment in determining what
constitutes a significant deficiency or material weakness in internal control. The standard
provides guidance on factors that auditors should consider in making this determination, such as
 the likelihood and potential magnitude of misstatements,
 the pervasiveness of the deficiency, and
 the adequacy of compensating controls.
 Susceptibility to loss/fraud of related asset
Overall, ISA 265 aims to enhance the effectiveness of audits by promoting clear and timely
communication of deficiencies in internal control to those charged with governance and
management. By doing so, it helps improve the overall reliability of financial reporting and
strengthens corporate governance practices
 REFERENCES:
ICAG: Study Manual: Audit and Assurance
ACCA: Study Manual: Audit and Assurance
International Standards on Auditing