Technical and Further Education Institutes: 2016 Audit Snapshot

Tabled: 7 June 2017

Appendix C. Management letter risk ratings

Figure C1 shows the risk ratings applied to management letter issues raised during a financial audit.

Figure C1 Definitions of risk ratings for issues reported in audit management letters

Rating

Definition

Management action required

Extreme

The matter represents:

  • a control weakness that could cause or is causing severe disruption of the process or severe adverse effect on the ability to achieve process objectives and comply with relevant legislation, or
  • a material misstatement in the financial report has occurred.

Requires immediate management intervention with a detailed action plan to be implemented within one month.

Requires executive management to correct the material misstatement in the financial report as a matter of urgency to avoid a qualified audit opinion.

High

The matter represents:

  • a control weakness that could have or is having a major adverse effect on the ability to achieve process objectives and comply with relevant legislation, or
  • a material misstatement in the financial report that is likely to occur.

Requires prompt intervention by managers with a detailed action plan implemented within two months.

Requires executive management to correct the material misstatement in the financial report to avoid a qualified audit opinion.

Medium

The matter represents:

  • a control weakness that could have or is having a moderate adverse effect on the ability to achieve process objectives and comply with relevant legislation, or
  • a misstatement in the financial report that is not material and has occurred.

Requires intervention by managers with a detailed action plan implemented within three to six months.

Low

The matter represents:

  • a minor control weakness with minimal but reportable impact on the ability to achieve process objectives and comply with relevant legislation, or
  • a misstatement in the financial report that is likely to occur but is not expected to be material, or
  • an opportunity to improve an existing process or internal control.

Requires management intervention with a detailed action plan implemented within six to 12 months.

Source: VAGO.

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