Page 103 - CA Final PARAM Digital Book.

Part 2- SA 265

QNO Letter of Weakness Old Course - (M15R, N15E, SM17, N18M, N18R, M20R, M20M, SM21)
26.000 TITANIUM CNO—SA265.060 New Course- (SM23)
During the course of his audit, the auditor noticed material weaknesses in the internal control system, and
he wishes to communicate the same to the management You are required to elucidate the important

points the auditor should keep in the mind while drafting the letter of weaknesses in internal control
system.
Answer Part I -- Relevant Standards & Laws
▪ SA 265, Communicating Deficiencies in Internal Control to Those who Charged with Governance and

Management
Part II -- Requirements of Relevant Standards & Laws

➢ Shall be in Writing.
Description of Deficiencies / Sufficient Information to understand nature & context
of communication
The auditor shall include in the written communication of significant deficiencies in internal
control:
• A description of the deficiencies and an explanation of their potential effects; and
• Sufficient information to enable those charged with governance and management
to understand the context of the communication.

➢ Explain purpose of the Audit.
→Test of controls is part of audit not purpose of expressing opinion on IFCR →There
can be other deficiency also we are certifying your system.
In particular, the auditor shall explain that:
• The purpose of the audit was for the auditor to express an opinion on the financial
statements;
• The audit included consideration of internal control relevant to the preparation of
the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of internal control; and
• The matters being reported are limited to those deficiencies that the auditor has
identified during the audit and that the auditor has concluded are of sufficient
importance to merit being reported to those charged with governance.

➢ Usefulness for Management & Auditor: -
Valuable refence document for Mgt revising the system and insisting strict 2-
compliance / Minimises auditor’s legal liability in event of major defalcation or other
loss resulting from weakness.
• This letter serves as a valuable reference document for management for the purpose
of revising the system and insisting on its strict implementation.
• The letter may also serve to minimize legal liability in the event of a major defalcation
or other loss resulting from a weakness in internal control.

QNO Significant Deficiencies Old Course - (M15R, N20E, N22M, M23R)
27.000 TITANIUM CNO—SA265.020 /SA265.040/ SA265.060 New Course- (SM23)

Give some examples of matters which auditor may consider while determining the significant deficiencies
in internal control.
OR
CA. N has been appointed as an auditor of TRP Ltd. While conducting the audit he has identified some
deficiencies in the Internal control. He needs to determine whether a deficiency or combination of
deficiencies in internal control constitutes a "significant deficiency" and has to communicate them in
writing to those charged with Governance and management on a timely basis. Guide CA. N with some

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