Communication with Management is the key
Auditors have a duty and responsibility to report their audit findings to those charged with governance in accordance with the International standards on auditing (ISA) 260. This is typically presented in a management letter or discussed at the finalisation meeting.
The letter sets out any significant deficiencies and material weaknesses identified during the audit and provides suggestions that may benefit the business, including improvements to its business operations and bringing innovative ideas, based on industry best practices with ways to improve internal control systems and put in cost efficiencies.
A management letter may cover a broad range of internal control deficiencies, such as a lack of segregation of duties, no account reconciliations undertaken for significant balances and failure to consistently maintain proper supporting documentation for transactions.
It is important for management and the Board to take on board the issues raised in the letter and to understand the auditors are there to help them to succeed and improve. The management letter is a value-added service in conjunction with the audit of the financial statement. The letter is to help management and the Board to strengthen its internal control as it generally contains identified deficiencies in the system and it also provides suggested solutions or alternative approaches to resolve these identified deficiencies.
If the Board wish to investigate further a specify area of their internal control and financial systems, the auditor would be happy to assist, in addition to their audit of the financial statements. The auditor is not required to perform specific audit procedures to identify all deficiencies in internal control or to express an opinion on the effectiveness of the entity’s internal control in the audit of the financial statements. The auditor’s key objective for the audit is to focus on the key risk areas of the business, which will in turn sets out the nature and extent of their audit work.
A traffic light system is often used to monitor the progress of the improvements to the company’s internal and financial controls and to help to track the results. It is fundamental for those businesses who want to succeed, to embrace change and stay ahead of their competitors in this fast ever changing environment.
If you would like to discuss this further please speak to our audit team or contact me: Ekow.firstname.lastname@example.org