ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the role of the auditor concerning deficiencies in internal control as stated in ISA 265?

1. To provide solutions to all deficiencies

2. To determine whether deficiencies exist and their significance

3. To solely report deficiencies to management

4. To effect changes in internal control

The correct answer is: To determine whether deficiencies exist and their significance

The role of the auditor regarding deficiencies in internal control, as outlined in ISA 265, primarily focuses on identifying whether deficiencies exist and assessing their significance. This is a crucial aspect of the auditor's responsibilities because it directly impacts the audit's effectiveness and the organization's overall financial reporting quality. Under ISA 265, auditors are expected to evaluate internal controls to pinpoint any deficiencies that could affect the reliability of financial statements. Once these deficiencies are identified, the auditor must consider their severity and implications for the audit process, as well as for the organization as a whole. This assessment helps in determining the appropriate audit responses and serves as a basis for communication with management regarding the internal control environment. By concentrating on their role as evaluators rather than implementers, auditors ensure an independent assessment of internal controls. Their responsibility does not extend to providing solutions for all deficiencies or making changes to internal controls, as this could compromise their objectivity. Furthermore, while auditors do report deficiencies, merely reporting them without assessing significance does not encapsulate the full extent of their role as mandated by ISA 265. Therefore, the focus is rightly placed on identifying deficiencies and evaluating their potential impact.