InSight: Evaluating and Communicating Internal Control Deficiencies

During the course of your audit, you may become aware of control deficiencies. To make sure you are following standards and serving your client, you’ll want to answer positively to these questions:

• Do I have a disciplined approach for assessing the severity of control deficiencies?  Will my approach produce consistent results from client to client and from year to year?
• Am I considering compensating controls when I make judgments about the severity of control deficiencies?
• Am I properly considering the “prudent official test?”
• How can I make sure that my threshold for significant deficiency--matters that are important enough to merit the attention of client management--is consistent with firm policy and the judgments made by others at the firm?
• Do my clients really understand our internal control letters?  Do they understand them well enough to respond appropriately to our findings?
• How can I do a better job of communicating internal control matters (not just deficiencies) to my clients?

To help you answer those and other questions, the AICPA has produced an online, interactive, media-rich course. This course provides practical guidance and hands on practice in making sound judgments. You’ll be guided by a video mentor and benefit from a decision guiding flowchart, example deficiencies, a sample letter, and a robust study guide.

Objectives

• Be able to determine whether a control deficiency is a material weakness.
• Exercise judgment to determine whether a control deficiency is a significant deficiency.
• Identify the content elements that should be included in a written communication to management about control deficiencies identified during a financial statement audit.