Communication Deficiencies in Internal Controls (ISA-265)

Jul 17, 2026

Lecture material on how auditors communicate identified internal control deficiencies under ISA-265 to management and those charged with governance (TCWG). Defines management versus TCWG roles, explains timely and formal reporting through a management letter, and details what the letter must include: the weakness, its consequences, and value-adding recommendations. Covers how to judge significant deficiencies, identifies types communicated to TCWG, and provides exam-focused guidance for answering payroll and sales/dispatch deficiency questions with marks allocation and two-column presentation.

LanguageEnglish

CategoryExam

FormatDOCX

Pages4

Reading Time10 min

AccessFree to download

AA-AUDIT & ASSURANCE – BY KASHIF KAMARAN – FCCA LECTURE 22 (IN SEQUENCE) LECTURE 6 - SYLLABUS AREA – C Topic 4: Communication deficiencies in internal controls Objective: To understand how the auditor communicate to deficiencies in internal control to management/ those be communicated with governance (TCWG) (ISA-265) What an exam question expect from the student and how to go about solving it? Communicating deficiencies in internal controls management /TCWG Deficiencies identified by the auditor in the internal control system through the test of control should be communicated on a timely basis to management/ and those charged with governance Management – means the middle management / managers / level 2 of the organization (tactical management TCWG – means the strategic management of the organization which includes the board of directors and the NEDs (primarily the audit committee) The deficiencies are communicated formally through a letter known as management letter written by the auditor to the management after completing the test of control procedures. The management letter includes: The weakness The consequences of the weakness for the company Recommendation – on how to overcome the weakness (value addition) What are significant deficiencies in internal controls?- Knowledge Significant deficiency is the judgement of the auditor, whereby the auditor need to carefully exercise professional judgement to conclude what make a deficiency significant. Any deficiency which affects the reputation of company or which affects the key stakeholders ( like customers for example) or which can result in misuse of company’s resources like lack of authorization can result in employees buying assets for personnel use. A deficiency around a key control or key policy of the organization will also be considered as significant Test of knowledge- student guidance What type of deficiencies are communicated to TCWG? The deficiencies not rectified by management The ones which are significant Exam perspective Question and examiner expectation from students: Example June 18 Q16B Identify and explain FIVE DEFICIENCIES in Raspberry Co’s payroll system and provide a recommendation to address each of these deficiencies. Note: Prepare your answer using two columns headed Control deficiency and Control recommendation respectively. (10 marks) How to fetch marks: If you just identify the weakness from the case it is worth 0.5 marks. However if you explain why it is a weakness/ or you justify the consequence of the weakness for the company you will fetch another 0.5 marks. Each weakness well explained is worth 1 mark For providing recommendation, each recommendation is worth 1 mark. (suggesting what should be done to rectify the weakness) Sep/Dec 19 Scenario 2b Identify and explain SEVEN DEFICIENCIES in Amberjack Co’s sales and dispatch system and provide a recommendation to address each of these deficiencies. (14 marks) Includes a covering letter ( 2 marks for covering letter) Re

Jul 17, 2026

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