ISA 260 standard is the property of IAASB and this summary is only for educational purposes. For some sections where summary may not give exact meaning, extracts of the standard are posted here.
ISA 260 definitions
Those charges with governance
ISA 260 defines those charged with governance as the person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager.
ISA 260 Scope
ISA 260 deals with the auditor’s responsibility to communicate with those charged with governance in an audit of financial statements.
ISA 260 effective date on or after 15 December 2009
ISA 260 Objective
ISA 260 objective are;
- To communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and an overview of the planned scope and timing of the audit;
- To obtain from those charged with governance information relevant to the audit;
- To provide those charged with governance with timely observations arising from the audit that are significant and relevant to their responsibility to oversee the financial reporting process; and
- To promote effective two-way communication between the auditor and those charged with governance.
ISA 260 Requirements
Those charged with governance
ISA 260 requires auditors to;
- Determine the appropriate person(s) within the entity’s governance structure with whom to communicate.
- In case of communication with sub committee to governing body, for example; audit committee, the auditors shall determine whether the auditor also needs to communicate with the governing body.
- When All of Those Charged with Governance Are Involved in Managing the Entity, then auditor do not need to communicate twice, however auditor shall nonetheless be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity
Matters to Be Communicated
ISA 260 require auditor to communicate following;
- The auditor is responsible for expressing opinion and audit does not relive management or those charged with governance of their responsibilities.
- Overview of the planned scope and timing of the audit and significant risks
- Auditor view on significant accounting practices, policies and estimates and their appropriateness.
- Significant difficulty in audit
- Significant matter those discussed with management
- Written representation that auditor is requesting
- Circumstances that affect the form and content of the auditor’s report
- Any other significant matters arising during the audit that, in the auditor’s professional judgment, are relevant to the oversight of the financial reporting process
- Incase of listed companies, communicate that the team, firm and network firms have complied with relevant ethical requirements regarding independence and where there is a risk the related safeguards applied to mitigate that risk. In addition to these fee for audit and non audit services shall be communicated to those charged with governance against relevant categories for them assess the effect of service on independence.
The Communication Process
ISA 260 required auditor to;
- shall communicate with those charged with governance the form, timing and expected general content of communications
- If auditors professional judgement conclude that oral communication with respect to significant risk is not adequate then communicate the same in writing
- Auditor in case of listed entities communicate about the independence as required above.
- Communicate on timely basis
- Audit shall access the adequacy of two way communication with those change with governance and its effect on auditors assessment of risk and ability to gather sufficient appropriate audit evidence
Documentation
Where matters required by this ISA to be communicated are communicated orally, the auditor shall include them in the audit documentation, and when and to whom they were communicated. Where matters have been communicated in writing, the auditor shall retain a copy of the communication as part of the audit documentation