During the audit of a nonissuer, the auditor identifies a deficiency in internal control. The auditor determines that the deficiency is not a material weakness but is significant enough to merit attention by those charged with governance. Which of the following is the correct communication requirement?

Answer options:

The auditor must communicate the significant deficiency orally to management only.

The auditor must communicate the significant deficiency in writing to those charged with governance and management.

The auditor is not required to communicate the deficiency if it is not a material weakness.

The auditor must communicate the deficiency in writing to the shareholders.

How to approach this question

Distinguish between 'deficiency', 'significant deficiency', and 'material weakness' and their communication requirements under AU-C 265.

Full Answer

B.The auditor must communicate the significant deficiency in writing to those charged with governance and management.✓ Correct

The auditor must communicate the significant deficiency in writing to those charged with governance and management.

AU-C 265 requires the auditor to communicate in writing to those charged with governance and management significant deficiencies and material weaknesses identified during the audit. Simple deficiencies that are not significant need only be communicated to management (can be oral or written), but significant ones mandate writing to governance.

Common mistakes

Thinking only material weaknesses require written communication.

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