The-Accountant-Jul-Aug-2017

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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
JULY - AUGUST 2017 23
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