Communication With Those Charged With Governance: Requirements Application Paragraphs

ISAs – Summaries and Application Guide ISA 260
ISA 260
COMMUNICATION WITH THOSE
CHARGED WITH GOVERNANCE
APPLICATION
LO # LEARNING OBJECTIVE REQUIREMENTS PARAGRAPHS
INTRODUCTION (SCOPE, OBJECTIVE, AND

LO 1 1 – 10 N/A
DEFINITION)
LO 2 THOSE CHARGED WITH GOVERNANCE 11 – 13 A1–A8
LO 3 MATTERS TO BE COMMUNICATED 14 – 17 A9–A36

LO 4 THE COMMUNICATION PROCESS 18 – 22 A37–A53
LO 5 DOCUMENTATION 23 A54
SPECIFIC REQUIREMENTS IN OTHER ISAS TO
APX APPENDIX 1
COMMUNICATIONS WITH TCWG
1
LO 1: INTRODUCTION (SCOPE, OBJECTIVE, AND DEFINITION):

This ISA deals with auditor’s responsibility to communicate with TCWG.
Both management and auditor have responsibilities to communicate with TCWG. Communication
by management does not relieve auditor of this responsibility (and vice-versa).
Matters to be communicated to TCWG may be required by ISA 260, by other ISAs, by law or
regulations, by terms of engagement. Auditor may also communicate “supplementary” matters to
TCWG.
However, law or regulations may restrict auditor to communicate certain matters to TCWG e.g. a
communication which may disturb an investigation of fraud or illegal act by TCWG.
Objectives of Communication with TCWG:

ISAs state four objectives of communication with TCWG i.e.
1. To promote two-way communication between auditor and TCWG.
2. To communicate responsibility of auditor, and planned scope and timing of audit.
3. To communicate significant matters arising during audit, relating to oversight of financial
reporting process by TCWG.
4. To obtain information from TCWG relevant to audit.
LO 2: THOSE CHARGED WITH GOVERNANCE:

Difference between Management and TCWG:
Management:
The persons with executive responsibility for the conduct of the entity’s operations.
Those charged with governance:

The persons responsible for overseeing the strategic direction and accountability of entity
(including overseeing the financial reporting process) e.g. board of directors in a company, or
owner-manager in small entity.
Determination of to whom to communicate within governance structure:

Governance structure vary by entity and by jurisdiction e.g.
 Sometimes, TCWG may also be involved in management.
 Sometimes, a sub-group (e.g. audit committee) may be formed to assist TCWG.
Because of these variations, it may not be clear as to which persons are appropriate to
communicate matters (particularly in in family owned businesses, not-for-profit organizations,
government entities). Therefore, ISA requires auditor to identify the appropriate persons within the
entity to whom to communicate matters.
Communication with a subgroup of those charged with governance:

If the auditor communicates with a subgroup of TCWG (e.g. audit committee), the auditor shall
determine whether the auditor also needs to communicate with the governing body.
2
When all of those charged with governance are involved in managing the entity:
This may happen in small entity. The matters need not be communicated again with those same
person, provided auditor is satisfied that matter is communicated to all persons with governance
responsibilities.
LO 3: MATTERS TO BE COMMUNICATED:
Matters required by ISA 260:
Auditor is required to communicate following matters to TCWG:
The Auditor’s Responsibilities in Relation to the Financial Statement Audit:

 The auditor is responsible for forming and expressing an opinion on the financial
statements
 The audit of the financial statements does not relieve management or TCWG of their
responsibilities
Planned Scope and Timing of the Audit:

 How the auditor plans to address significant and higher risk of material misstatements.
 The auditor’s approach to internal control
 application of the concept of materiality
 Planned use of work of internal auditor, or use of internal auditor to provide direct
assistance.
 Nature and use of specialized skills needed, include use of expert.
 Auditor’s preliminary views about Key Audit Matters.
Communication regarding planned scope and timing of audit helps auditor to better understand
entity; and also helps TCWG to better understand issues like Risk, Materiality and areas in which
they may want auditor to undertake additional procedures.
Significant Audit Findings:

 The auditor’s views about qualitative aspects of the entity’s accounting practices.
 Significant difficulties, if any, encountered during the audit
 Circumstances affecting form and content of auditor’s report.
 Significant matters discussed with management, and requested written representation (if
TCWG are different from management).
Auditor Independence (for listed entities):

 A statement that engagement team has complied with ethical requirements including
independence.
 Situations creating threat to independence (e.g. fee for assurance and non-assurance
services), and related Safeguards.
3
LO 4: THE COMMUNICATION PROCESS:

Establishing the communication process:
Communication with TCWG:
The auditor shall communicate with TCWG
 Form of communication
 Who from auditors will communicate whom from TCWG.
Communication with Management:

It may be necessary to discuss some matters to management (or internal auditors) before
communication with TCWG unless inappropriate (e.g. issues regarding competence and integrity of
management).
Communication with Third Parties:

TCWG may provide communication by auditor to third parties, therefore, auditor should include in
his communication:
 restriction on use and distribution, and
 disclaimer of responsibilities to third parties.
Auditor will need prior approval of TCWG to provide copy of communication to third parties, unless
required by law.
Forms of communication:
Matters relating to auditor’s independence will be communicated in writing.
Other matters may be communicated:
 orally or
 in writing (if oral communication is not adequate), considering significance of the matter,
legal requirement, effect on report.
Timing of communication:
Matter(s) should be communicated on timely basis. What is appropriate timing, depends on nature
and significance of the matter, and other factors e.g.
 Planning matters may be communicated at start of the engagement.
 Significant difficulties encountered during audit (e.g. significant misstatements, scope
limitations or deficiencies in internal control) are communicated as soon as practicable.
LO 5: DOCUMENTATION:
Where matters required by this ISA to be communicated are communicated orally, the auditor shall
include them in the audit documentation, and when and to whom they were communicated (e.g.
through minutes of the meeting prepared by entity).
Where matters have been communicated in writing, the auditor shall retain a copy of the
communication as part of the audit documentation
4
APX 1: SPECIFIC REQUIREMENTS IN OTHER ISAS TO COMMUNICATIONS WITH

TCWG:
Standard Required matter to communicate to TCWG

ISQC 1, “Quality Control for
Identity and role of engagement partner
Firms…..”
 Inquiring TCWG whether they have knowledge of any actual, suspected or alleged
fraud affecting the entity
ISA 240 “Fraud”.  If auditor identifies fraud or obtains information indicating fraud.
 Decision of withdrawal and reason of withdrawal if auditor withdraws from
engagement
 Inquiring TCWG whether they have knowledge of any non-compliance with laws
ISA 250 “Consideration of affecting the entity
laws…”  If auditor identifies non-compliance or obtains information indicating non-
compliance.
ISA 265 “Communicating
Significant deficiencies in internal control identified during the audit
deficiencies in …”.
ISA 450 “Evaluation of Uncorrected misstatements affecting opinion, individually (if individually material), or in
misstatements…” aggregate (if individually immaterial).
ISA 505 “External If the auditor concludes that management’s refusal to allow the auditor to send a
confirmation” confirmation request is unreasonable
ISA 510 “Initial Audit
If misstatement in opening balance is identified which affects current period.
Engagement ….”
 Non-disclosure of significant related party or transaction.
 significant related party transactions that have not been appropriately approved
 Disagreement with management regarding the accounting for and disclosure of
ISA 550 “Related Parties”
significant related party transactions
 Non-compliance with applicable law or regulations prohibiting or restricting
specific types of related party transactions
 Inquiring TCWG whether they have knowledge of any subsequent event affecting
ISA 560 “Subsequent the entity
Event”  If auditor identifies subsequent event after the date of auditor’s report.
 If misstatement is identified after issuance of audit report or financial statements.
ISA 570 “Going Concern”. Events or conditions casting doubt on entity’s ability to continue as going concern.
Overview of work to be performed on components.
ISA 600 “Group Audit”
Planned use and involvement in work of component auditor
ISA 610 “Internal Auditor” how the external auditor has planned to use the work of the internal audit function
ISA 701 “Key Audit
KAMs to communicate in audit report.
Matters”
If management imposes scope limitation.
ISA 705 “Modified Opinion” If auditor expects to modify his opinion.
If auditor withdraws from engagement.
ISA 706 “EOM/OM
Wording of EOM/OM if auditor expects to include in audit report.
Paragraphs”
ISA 710 “Comparative
If a misstatement is identified in prior period financial statements.
Information…”
ISA 720 “Other
Uncorrected misstatement in other information.
Information”
In a given case study, examiner may require you to identify which matters are required to be reported to TCWG.

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ISAs – Summaries and Application Guide ISA 260

INTRODUCTION (SCOPE, OBJECTIVE, AND

LO 3 MATTERS TO BE COMMUNICATED 14 – 17 A9–A36

LO 1: INTRODUCTION (SCOPE, OBJECTIVE, AND DEFINITION):

Objectives of Communication with TCWG:

LO 2: THOSE CHARGED WITH GOVERNANCE:

Those charged with governance:

Determination of to whom to communicate within governance structure:

Communication with a subgroup of those charged with governance:

The Auditor’s Responsibilities in Relation to the Financial Statement Audit:

Planned Scope and Timing of the Audit:

Significant Audit Findings:

Auditor Independence (for listed entities):

LO 4: THE COMMUNICATION PROCESS:

Communication with Management:

Communication with Third Parties:

APX 1: SPECIFIC REQUIREMENTS IN OTHER ISAS TO COMMUNICATIONS WITH

Standard Required matter to communicate to TCWG

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