International Auditing and Assurance Standards Board

Communication with Those Charged with Governance

ISA Implementation Support Module

Prepared by IAASB Staff October 2009

Overview
Introduction Two-Way Communication The Communication Process

Matters to be Communicated

Introduction

Introduction
The context for revising the standard New standard provides overarching framework for communication with TCWG Standard applies regardless of entitys governance structure or size Specific considerations where TCWG and management are the same

Two-Way Communication

Two-Way Communication
Old standard focused on communication of audit matters arising from the audit with TCWG
Essentially a one-way communication from auditor to TCWG

New standard imposes specific obligation on auditor to promote effective two-way communication
Auditor now has specific responsibility to take steps to achieve effective two-way communication, or failing that, to take further appropriate action

Emphasis on effective two-way communication recognized in the objectives

Two-Way Communication

Two-Way Communication
Why is it important?
Assists in developing constructive working relationship between auditor and TCWG Sets clear expectations between auditor and TCWG regarding communication of matters of audit relevance

Recognizes that TCWG are an important element of control environment

Assists TCWG in fulfilling their oversight responsibility for financial reporting process Recognizes that TCWG are an important source of information for conduct of effective audit

Two-Way Communication

Two-Way Communication
Standard does not mandate two-way communication
TCWG cannot be required to communicate with auditor

However, auditor required to evaluate whether two-way communication has been adequate
If two-way communication not adequate
May affect auditors assessment of risks of material misstatement
May affect auditors ability to obtain sufficient appropriate audit evidence Standard provides guidance on possible auditor actions
6

The Communication Process

The Communication Process

Communicate form, timing, and expected general content of communications
Provides basis for constructive dialogue

Helps to explain or clarify such matters as

Purpose of communications

Which person(s) on each side will be the point contacts

The auditors expectation that the communication will be two-way

How the feedback mechanism will work between the parties

7

The Communication Process

Communication Process in an SME Audit

Will not be the same as in a larger entity audit
Process will vary with entitys size and governance structure, among other things

Formal communications may be more appropriate in a larger entity audit

Greater formality may be necessary with greater size and complexity of entity
8

The Communication Process

Communication Process in an SME Audit

Less structured approach often more suitable in an SME audit
Consistent with lack of formality in management and governance practices in SMEs

Often, oral communication may be all that is needed in an SME audit

Especially if auditor has ongoing contact and dialogue with TCWG
9

The Communication Process

The Communication Process

If all TCWG are involved in managing the entity, matters communicated with them in a management capacity need not be recommunicated with them in a governance role
Common situation in owner-managed entities

However, make sure that communication with individuals with management responsibilities informs all of those in a governance role
10

Matters to be Communicated

Matters to be Communicated
New standard is much more specific about matters that should be communicated
Auditors responsibilities in relation to the audit
Planned scope and timing of the audit Significant findings from the audit

Objectives recognize importance of these matters

Intended to increase consistency of communication practices

Will enhance quality and effectiveness of auditors communication with TCWG

11

Matters to be Communicated

Communicating Planned Scope and Timing of Audit

Helps TCWG better understand the audit and what to expect from it Opportunity for TCWG to identify any specific areas where they may ask auditor to perform additional work Assists auditor in better understanding the entity and its environment through dialogue with TCWG, consistent with the two-way communication principle Care needed not to compromise effectiveness of audit
12

Matters to be Communicated

Communicating Significant Findings

Significant qualitative aspects of accounting practices
E.g., accounting policies, accounting estimates, and disclosures

Significant difficulties encountered during audit

Unless all TCWG and management are the same

Significant matters discussed with management Written representations sought by auditor

Other matters of significance to oversight of financial reporting process

13

Matters to be Communicated

Communicating Significant Findings

Why is such communication important?
Helps confirm relevant facts and circumstances and achieve mutual understanding of the issues Recognizes need for open and constructive dialogue on these matters Provides opportunity to resolve significant difficulties arising during audit

Communicate in writing if oral communication would be inadequate

14

Matters to be Communicated

Communicating Independence Matters

For listed entity audits, communicate
The auditors compliance with independence requirements All relationships that may affect the auditors independence

Safeguards implemented to eliminate threats to independence or reduce them to acceptable level

This communication
Required to be in writing May also be relevant for audits of other entities, e.g., those with significant public interest
15

Note
This set of support slides does not amend or override the ISAs, the texts of which alone are authoritative. Reading the slides is not a substitute for reading the ISAs. The slides are not meant to be exhaustive and reference to the ISAs themselves should always be made. In conducting an audit in accordance with ISAs, the auditor is required to comply with all the ISAs that are relevant to the engagement.

16

International Federation of Accountants

Copyright October 2009 by the International Federation of Accountants (IFAC). All rights reserved. Permission is granted to make copies of this work provided that such copies are for use in academic classrooms or for personal use and are not sold or disseminated and provided that each copy bears the following credit line: Copyright October 2009 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact permissions@ifac.org for permission to reproduce, store, or transmit this work. Otherwise, written permission from IFAC is required to reproduce, store, or transmit, or to make other similar uses of, this work, except as permitted by law. Contact permissions@ifac.org. ISBN: 978-1-60815-043-4 www.ifac.org