The-Accountant-Jul-Aug-2017

Governance
auditor should discuss the matters with
management first at initial stages in order
to clarify facts and issues, and to give
management an opportunity to provide
further information and explanations.
An article entitled ACCA Think Ahead;
indicates that when considering the
reporting outputs of an audit of historical
financial information, attention is usually
focused on the audit opinion issued by
auditors to shareholders in case of limited
companies. However, it further indicates
that another great output produced in
the auditors’ report is the aspect of the
auditor’s communication to those charged
with governance.
In order to make the communication
work well, it will be important to
understand to whom the communication
should be directed to although the
Auditing standards do not specify the
actual person(s) the communication
should be directed. But to my
understanding, it should be directed
to persons entrusted with supervision,
control and direction of the entity
(Governance) often called the accounting
officers in the public sector in Kenya as
those charged with governance ordinarily
are accountable for ensuring that the
entity achieves its objectives, with regard
to reliability, effectiveness and efficiency
of operations compliance with applicable
laws. However, the appropriate person(s)
to be communicated may vary depending
on the matter to be communicated.
It should be understood that audit
matters of governance include only those
matters that have come to the attention
of the auditors as a result of performing
their audit function and should be
communicated on timely basis in order to
enable those charged with governance to
take appropriate action. The auditor must
communicate with those charged with
governance, matters related to the financial
statement audit that are, in the auditor’s
professional judgment, significant
and relevant in terms responsibilities
of those charged with governance in
overseeing the financial reporting process.
However, certain aspects like legal
requirements depending on the legal
structure existing in a given country may
require that communication of matters
to those charged with governance be
communicated to legal entities and this
matters may include ; fraud, illegal acts,
improprieties in procurement process,
violation of contracts or agreements and
other illegal acts.
Auditors should communicate matters
relating to;
• Auditor’s responsibilities under generally
accepted auditing standards.
• An overview of the audit planning, scope
and timing of audit.
• The audit of the financial statements does
not relieve management or those charged
with governance of their responsibilities.
• The auditors are responsible for
forming and expressing an opinion about
whether the financial statements that
have been prepared by management are
presented fairly, in all material respects,
in conformity with Generally Acceptable
Accounting Standards (GAAPS).
• The relationships that may bear on the
auditor’s independence and objectivity,
audit findings from the audit including
the auditors’ views on the qualitative
aspects of the entity’s accounting and
reporting.
• Concept of materiality and its
application to the audit approach.
• The way auditors propose to address
the risk of material misstatements, with
particular reference to areas of high risk.
• The auditors’ approach to the assessment
of, and reliance on, internal controls.
• The extent, if any, to which reliance
should be placed on the work of internal
audit and on the best way internal and
external auditors can work best on a
constructive and complementary basis.
• Expected modifications to the auditors’
report in order to ensure that those
charged with governance are aware of the
proposed modifications and the reasons
for it before the report is finalized. Those
charged with governance mandate have
an opportunity, where appropriate, to
provide auditors with further information
and explanations in respect to matter(s)
giving rise to the proposed modification.
This also helps ensure that no disrupted
facts in respect of the matter(s) giving rise
to the proposed modification or matters
of disagreements are confirmed as such.
• Unadjusted misstatements detected
by the auditors. When misstatements
identified by the auditors are not adjusted
by the entity’s management the auditors
communicate all such unadjusted
misstatements. In case of refusal to make
further adjustments by those charged
with governance, the auditors’ should still
explain the reasons for, and appropriateness
of, not making those adjustments
having regard to both qualitative and
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