REPORTING TO

MANAGEMENT

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NEED FOR COMMUNICATION
• Any specific statutory or regulatory requirements
• Independence and objectivity (ES1)
• Compliance with various Auditing Standards
• Helps directors
• Provides auditor with relevant information
• Helps audit committee
• Differentiate between firms
• Impact on future audits.
• Catalyst for future services.
• Protection in case of negligence.

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 WHO TO COMMUNICATE WITH
Auditor may communicate with:
• Full board
• A committee
• An individual

Consider:
• Responsibility of committee/individual
• Nature of matter
• Knowledge and expertise
• Authority
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 FORM AND FREQUENCY OF
COMMUNICATION
Consider:
• Size and operating structure of the entity
• Nature and sensitivity of matter being
reported
• Statutory and regulatory requirements
including restrictions
• Arrangements with client

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TIMING OF COMMUNICATION
Communication should be on a timely basis

• Engagement letter
• Planning
• During audit
• Report to management

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 EFFECTIVENESS OF
COMMUNICATION
• Two way process

• Indicators of effectiveness
– Action taken by management
– Apparent openness
– Willingness to meet auditor
– Apparent understanding

• Ineffective communication
– Modify audit report for limitation of scope
– Legal advice
– Communicate with third parties
– Consider resigning

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MATTERS TO COMMUNICATE
• Auditor’s responsibilities

• Factors that impact on independence

• Planning information

• Findings from the audit

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 FINDINGS FROM THE AUDIT
• Qualitative aspects
• Difficulties encountered in the audit
• Draft management representation letter
• Unadjusted misstatements
• Adjusted misstatements
• Expected modifications to the audit report
• Material weaknesses in systems
• Information relevant to corporate governance
• Other specific matters

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 MANAGEMENT LETTER
• Addressee
• Introduction
• Major points
• Disclaimer
• Conclusion
• Appendices

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 APPENDICES
Contains less significant points.
• Weakness
• Implication
• Recommendation
• Management response

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 LIABILITY OF AUDITOR
• Ensure comments are factually accurate.

• Determine recipients in advance

• Disclaimers in report

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PUBLICATION OF MANAGEMENT
LETTER
Advantages
• Assessment of management
• Appointment of auditors

Disadvantages
• Less frank
• Lack of understanding
• Validity and relevance of point not clear
• Negotiation over contents

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