Communication with Those Charged with Governance

CAS 260

Communication with Those Charged with Governance

CAS 260

General
  • Those charged with governance = a person or group who has the responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity, including overseeing the financial reporting process
Objectives

The objectives of the auditor are:

  • To communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and an overview of the planned scope and timing of the audit
  • To obtain from those charged with governance information relevant to the audit
  • To provide those charged with governance with timely observations arising from the audit that are significant and relevant to their responsibility to oversee the financial reporting process
  • To promote effective two-way communication between the auditor and those charged with governance.
Requirements
  • The auditor needs to determine the appropriate person(s) to communicate (i.e. The board of directors, supervisory board, trustees, committees of management)
  • If the auditor communicates with a subgroup of those charged with governance, i.e. An audit committee, the auditor should determine whether the auditor also needs to communicate with the governing body
    • Consider how effectively the subgroup communicates relevant information with the governing body
  • If all those in charge of governance are also involved in managing the company, communicate the matters required by this CAS to management
Matters to be communicated with those charged with governance
  • Responsibilities of the auditor in relation to the F/S audit, including that:
    • Auditor is responsible for forming and expressing an opinion on the F/S prepared by mgm’t with oversight from those in charge of governance; and
    • Audit of the F/S does not relieve management or those charged with governance of their responsibilities
  • An overview on the planned scope and timing of the audit
    • In doing this, care is required as not to compromise the effectiveness of the audit by making procedures too predictable (especially if those charged with governance also have management responsibilities)
    • Matters communicated may include:
      • How the auditor proposes to address the significant risks of material misstatement
      • The auditor’s approach to internal control relevant to the audit
      • The application of the concept of materiality in the context of an audit
      • The extent to which the auditor will use the work of internal audit
  • Significant Findings from the Audit
    • The auditor’s views about the entity’s accounting practices, including accounting policies, accounting estimates and F/S disclosures; also why the auditor considers a significant accounting practice, that is allowed under GAAP not to be most appropriate to the particular situation
    • Significant difficulties, if any, encountered during the audit
    • Significant matters, if any, arising from the audit that were discussed with management
    • Written representations the auditor is requesting
    • Other matters that are significant to the oversight of the financial reporting process (i.e. misstatements of facts/inconsistencies in information accompanying the audited F/S)
  • Auditor Independence
    • For listed companies communicate the following to those charged with governance:
      • A statement that the engagement team and the firm has complied with relevant ethical requirements regarding independence
      • All relationships and other matters between the firm and the entity, in the auditor’s professional judgment, may reasonably be thought to bear on independence including the fees charged for the audit/non-audit services
      • The related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level
        • Threats to independence= self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats;
      • This must be communicated in writing
The Communication Process
  • Communicate with those charged with governance the form, timing and expected general content of communications
  • Communicate in writing with those charged with governance regarding significant findings from the audit if, in the auditor’s professional judgment, oral communication would not be adequate
  • communicate with those charged with governance on a timely basis
  • Evaluate whether the two-way communication between the auditor and those charged with governance has been adequate
    • If not, the auditor evaluate the effect on the auditor’s assessment of the risks of material misstatement and ability to obtain sufficient appropriate audit evidence, and should take appropriate action
Documentation
  • Communication required by this CAS is to be documented (even if communicated orally)
  • i.e. document the discussions by keeping minutes

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