Required Communications with Those Charged with Governance

Question 1

Those Charged with Governance

Answer 1

The person(s) or organization(s) with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity (encompasses the term “board of directors” or “audit committee” used elsewhere in the auditing standards).

Question 2

Basic Auditor Responsibility

Answer 2

The auditor should communicate those matters that are significant and relevant to the responsibilities of those charged with governance in overseeing the financial reporting process.

Question 3

Communication with Management

Answer 3

The auditor may choose to discuss some matters with management before communicating them with those charged with governance, unless that is inappropriate. For example, the auditor would not normally discuss issues involving management’s competence or integrity. Likewise, the auditor may choose to discuss some matters with the internal auditor(s) before communicating the matters with those charged with governance.

Question 4

The Auditor’s Responsibilities under GAAS

Answer 4

The auditor should communicate the auditor’s responsibility for expressing an opinion on the fairness of the financial statements, and point out that management is responsible for presenting the financial statements in conformity with the applicable financial reporting framework. These responsibilities could be communicated by an engagement letter.

Question 5

The Planned Scope and Timing of the Audit

Answer 5

The auditor should communicate an overview of the planned scope and timing of the audit engagement.

Question 6

Significant Findings from the Audit–The Auditors should communicate:

Answer 6

1) The auditor’s views about the qualitative aspects of the entity’s significant accounting policies including the quality (not just the acceptability) of significant accounting practices, estimates, and disclosures;
2) Significant difficulties encountered during the audit including significant delays caused by management, unreasonable time pressure, unavailability of expected information, etc.;
3) Disagreements with management over accounting and auditing matters whether or not those disagreements were satisfactorily resolved; and
4) Any other matters that the auditor believes would be important to those charged with governance in their oversight of financial reporting.

Question 7

Uncorrected misstatements

Answer 7

The auditor should request that uncorrected misstatements be corrected and communicate any uncorrected misstatements accumulated by the auditor, including the financial statement effect.

Question 8

Other Statements on Auditing Standards—Other statements require that certain specific matters should be communicated to those charged with governance regarding:

Illegal Acts

Answer 8

The auditor should communicate any illegal acts that come to the auditor’s attention.

Question 9

Going-Concern Issues

Answer 9

When substantial doubt about the entity’s ability to continue as a going concern remains after considering management’s strategy, the auditor should communicate (1) the nature of the conditions identified; (2) the possible effect on the financial statements and disclosures; and (3) the effects on the auditor’s report:

Question 10

Fraud—The auditor should:

Answer 10

1) Inquire of the audit committee about the risks of fraud and the audit committee’s knowledge of any fraud or suspected fraud;
2) Communicate any fraud discovered involving senior management and any fraud that causes a material misstatement (whether or not management is involved); and
3) Obtain an understanding with those charged with governance regarding communications about misappropriations committed by lower-level employees.

Question 11

Communicating Internal Control Matters Identified in an Audit

Answer 11

The auditor should communicate to management and those charged with governance any identified significant deficiencies in internal control (including material weaknesses).