Transcript Two-Way Communication Two-Way Communication

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
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Introduction
Introduction
• The context for revising the standard
• New standard provides overarching framework
for communication with TCWG
• Standard applies regardless of entity’s
governance structure or size
• Specific considerations where TCWG and
management are the same
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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
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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
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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 auditor’s assessment of risks of material
misstatement
– May affect auditor’s ability to obtain sufficient
appropriate audit evidence
– Standard provides guidance on possible auditor actions
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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 auditor’s expectation that the communication will be
two-way
– How the feedback mechanism will work between the
parties
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The Communication Process
Communication Process in an SME Audit
• Will not be the same as in a larger entity
audit
– Process will vary with entity’s 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
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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
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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
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Matters to be Communicated
Matters to be Communicated
• New standard is much more specific about matters that
should be communicated
– Auditor’s 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 auditor’s
communication with TCWG
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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
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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
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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
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Matters to be Communicated
Communicating Independence Matters
• For listed entity audits, communicate
– The auditor’s compliance with independence
requirements
– All relationships that may affect the auditor’s
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
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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.
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