Lesson: Deficiencies in Internal Controls

In this lesson, the auditor's responsibility for identifying deficiencies in internal control is discussed. Although auditors are not required to perform procedures to identify deficiencies in a normal audit, they may become aware of them while obtaining an understanding of the entity and its environment. Deficiencies can exist in design, implementation, and maintenance of internal controls, and each aspect must be given equal weight in order to have effective controls. The lesson then delves into deficiencies in design and operation, explaining that a control may be missing or not properly designed to meet its objective, or it could fail to operate as designed due to a lack of authority or competence in the person performing the control. Finally, the terms material weakness and significant deficiency are introduced to further classify the severity of identified deficiencies.