Financial audit Essay Example for Free

Financial audit Essay A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. * Material weakness. A deficiency or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented, or detected and corrected, on a timely basis. * Significant deficiency. A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. AU-C Â §265 also claims that the auditor should communicate to management at an appropriate level of responsibility, on a timely basis. in writing, significant deficiencies and material weaknesses that the auditor has communicated or intends to communicate to those charged with governance, unless it would be inappropriate to communicate directly to management in the circumstances. * in writing or orally, other deficiencies in internal control identified during the audit that have not been communicated to management by other parties and that, in the auditors professional judgment, are of sufficient importance to merit managements attention. If other deficiencies in internal control are communicated orally, the auditor should document the communication.