ACCA ARTICLE ISA 260, Communication of Audit Matters With Those Charged With Governance,-April 2015
When considering the reporting ‘outputs’ of an audit of historical financial information, attention is usually focused on the report issued by the auditors to shareholders, which contains the audit opinion. However, there is another important reporting ‘output’ produced as a result of the audit process – the auditor’s communication to those charged with governance. This short article outlines the main features of this communication and summarises the requirements of ISA 260, Communication of Audit Matters With Those Charged With Governance, and the UK equivalent, ISA 260 (UK and Ireland), Communication of Audit Matters With Those Charged With Governance. Auditors are required by ISA 260 to communicate audit matters of governance interest to those charged with governance. It is important that those charged with governance have an understanding of all significant issues that have arisen from the audit process.
The first step is to consider to whom the communication should be directed. ISA 260 does not specify this exactly, but states that ‘governance is the term used to describe the role of persons entrusted with the supervision, control and direction of an entity’. This implies that the communication should be with the highest level of management, including the executive and non-executive directors, and the audit committee, where relevant. The identity of the relevant person(s) to whom the communication will be addressed may be clarified in the engagement letter.
Matters to be communicated
In the second step, the auditor should consider the type of issues that should be communicated. ISA 260 provides some guidance as to the matters which ordinarily could be incorporated in the communication, including: the overall approach and scope of the audit, including any limitations on the scope of the audit the accounting policies, and any changes...
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