The-Accountant-Jul-Aug-2017

Governance
quantitative considerations, and consider
the implication for their audit report of
the effect of misstatements that remain
unadjusted. In this scenario, the auditor
should seek a written representation
from those charged with governance
that explains their reasons for not
adjusting misstatements brought to their
attention by the auditors as per SAS
610.6-Statement of Auditing Standards.
Where the communication was done
orally, the auditor shall include them
in audit documentation, and when and
to whom they were communicated.
Documents pertaining oral presentation
may include a copy of minutes prepared
by the entity if those minutes are an
appropriate record of the communication.
• Material weaknesses in the accounting
and internal control systems identified
during audit.
• The selection of or changes in, significant
accounting policies and practices that
have, or could have, a material effect on
the entity’s financial statements.
• Material uncertainties related to events
and conditions that may cast significant
doubt on the entity’s ability to continue as
a going concern.
• For listed entities, a confirmation that
the auditors have complied with ethical
standards and appropriate safeguards
have been put in place for any ethical
threats identified.
• Any deficiencies in the internal
control system identified should be
communicated in writing or verbally.
• Other matters, if any, arising from the
audit that, in the auditor’s professional
judgment, are significant to the oversight
of the financial reporting process.
The decision to communicate formally
or orally, the extent of summarization
in the communication, or whether to
communicate formally or informally may
be affected by such factors as;
• Whether management has previously
communicated the matter
• Whether there has been significant
changes in the membership of a governing
body
• Whether the matter has been resolved
satisfactorily
• The size, operation structure, control
environment, and legal structure of the
entity being audited.
• The amount of ongoing contact and
dialogue the auditor has with those
charged with governance
• Legal or regulatory requirements that
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.
may require a written communication
with those charged with governance.
• Whether the auditor audits special
purpose audit statements apart from
general purpose audit statements.
• The expectations of those charged with
governance, including arrangements made
for periodic meetings or communications
with the auditor.
In order to achieve an effective
communication, there should be a
constructive working relationship
between the auditor and those charged
with governance as the relationship is
maintained by developing an attitude
of professional independence and
objectivity. To avoid misunderstandings,
the engagement letter should specify that
the auditor will communicate only those
matters of governance interest that come
to attention as a result of the performance
of an audit and the auditor is not required
to design audit procedures for the
specific purpose of identifying matters of
governance interest.
In the proposed revised ISA 260, the
IAASB reviewed use of those charged
with governance, management, and
related terms such as directors, clients and
board. While underlying the use of terms
such as ‘‘those charged with governance’’
and ‘‘management’’ the presumptions
have been that,
1. Management and those charged with
governance are different.
2. Management is responsible for financial
statements, whereas those charged with
governance play an oversight role only.
However, the auditor needs to be keen
in circumstances where in some entities
there is no clear distinction between
management and those charged with
governance as the managers may be the
same people who perform oversight role
or where those responsible for oversight
role also prepare financial statements and
do approvals. This may sound a tricky
situation and it’s my request that IAASB
should be specific on how this kind of a
situation needs to be handled in terms of
interpretations of relevant laws governing
audit undertakings.
Additionally, when reporting, it assists
the auditor and those charged with
governance in understanding matters
related to audit, and in developing a
constructive working relationship. It
helps the auditor in obtaining from those
charged with governance, information
relevant to the audit and helps them
in fulfilling their responsibility to
oversee the financial reporting process,
thereby reducing the risks of material
misstatements of the financial statements.
Therefore as much as other sections
contained in the ISAs are considered
important while undertaking audit
engagements, it should be remembered
that communication of audit matters
to those charged with governance is
an important part under International
Standards of Auditing and should
continuously be embraced by the auditors
while undertaking their daily or routine
tasks.
22 JULY - AUGUST 2017