Annual Audit Manual

COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.

2214 Required communications for all engagements
Jun-2021

In This Section

The auditor’s responsibilities in relation to the financial statement audit

Planned scope and timing of the audit

Significant findings from the audit

Auditor independence

Specific communication required by other CASs

Supplementary matters

Overview

  • The auditor’s responsibilities in relation to the financial statement audit
  • Planned scope and timing of the audit
  • Significant findings from the audit
  • Auditor Independence
  • Specific communication required by other CASs
  • Supplementary matters
The auditor’s responsibilities in relation to the financial statement audit

CAS Requirement

The auditor shall communicate with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, including that (CAS 260.14):

(a) The auditor is responsible for forming and expressing an opinion on the financial statements that have been prepared by management with the oversight of those charged with governance; and

(b) The audit of the financial statements does not relieve management or those charged with governance of their responsibilities.

CAS Guidance

The auditor’s responsibilities in relation to the financial statement audit are often included in the engagement letter or other suitable form of written agreement that records the agreed terms of the engagement. Law, regulation or the governance structure of the entity may require those charged with governance to agree the terms of the engagement with the auditor. When this is not the case, providing those charged with governance with a copy of that engagement letter or other suitable form of written agreement may be an appropriate way to communicate with them regarding such matters as (CAS 260.A9):

  • The auditor’s responsibility for performing the audit in accordance with CASs, which is directed towards the expression of an opinion on the financial statements. The matters that CASs require to be communicated, therefore, include significant matters arising during the audit of the financial statements That are relevant to those charged with governance in overseeing the financial reporting process.

  • The fact that CASs do not require the auditor to design procedures for the purpose of identifying supplementary matters to communicate with those charged with governance.

  • When CAS 701 applies, the auditor’s responsibilities to determine and communicate key audit matters in the auditor’s report.

  • When applicable, the auditor’s responsibility for communicating particular matters required by law or regulation, by agreement with the entity or by additional requirements applicable to the engagement, for example, the standards of a national professional accountancy body.

Law or regulation, an agreement with the entity or additional requirements applicable to the engagement may provide for broader communication with those charged with governance. For example, (a) an agreement with the entity may provide for particular matters to be communicated when they arise from services provided by a firm or network firm other than the financial statement audit; or (b) the mandate of a public sector auditor may provide for matters to be communicated that come to the auditor’s attention as a result of other work, such as performance audits. (CAS 260.A10).

Planned scope and timing of the audit

CAS Requirement

The auditor shall communicate with those charged with governance an overview of the planned scope and timing of the audit, which includes communicating about the significant risks identified by the auditor (CAS 260.15).

CAS Guidance

Communication regarding the planned scope and timing of the audit may (CAS 260.A11):

(a) Assist those charged with governance to understand better the consequences of the auditor’s work, to discuss issues of risk and the concept of materiality with the auditor, and to identify any areas in which they may request the auditor to undertake additional procedures; and

(b) Assist the auditor to understand better the entity and its environment.

Communicating significant risks identified by the auditor helps those charged with governance understand those matters and why they were determined to be significant risks. The communication about significant risks may assist those charged with governance in fulfilling their responsibility to oversee the financial reporting process (CAS 260.A12).

Matters communicated may include (CAS 260.A13):

  • How the auditor plans to address the significant risks of material misstatement, whether due to fraud or error.

  • How the auditor plans to address areas of higher assessed risks of material misstatement.

  • The auditor’s approach to the entity’s system of internal control.

  • The application of the concept of materiality in the context of an audit.

  • The nature and extent of specialized skill or knowledge needed to perform the planned audit procedures or evaluate the audit results, including the use of an auditor’s expert.

  • When CAS 701 applies, the auditor’s preliminary views about matters that may be areas of significant auditor attention in the audit and therefore may be key audit matters.

  • The auditor’s planned approach to addressing the implications on the individual statements and the disclosures of any significant changes within the applicable financial reporting framework or in the entity’s environment, financial condition or activities.

Other planning matters that it may be appropriate to discuss with those charged with governance include (CAS 260.A14):

  • Where the entity has an internal audit function, how the external auditor and internal auditors can work together in a constructive and complementary manner, including any planned use of the work of the internal audit function, and the nature and extent of any planned use of internal auditors to provide direct assistance.

  • The views of those charged with governance about:

    • The appropriate person(s) in the entity’s governance structure with whom to communicate.
    • The allocation of responsibilities between those charged with governance and management.
    • The entity’s objectives and strategies, and the related business risks that may result in material misstatements.
    • Matters those charged with governance consider warrant particular attention during the audit, and any areas where they request additional procedures to be undertaken.
    • Significant communications between the entity and regulators.
    • Other matters those charged with governance consider may influence the audit of the financial statements.

  • The attitudes, awareness, and actions of those charged with governance concerning (a) the entity’s internal control and its importance in the entity, including how those charged with governance oversee the effectiveness of internal control, and (b) the detection or possibility of fraud.

  • The actions of those charged with governance in response to developments in accounting standards, corporate governance practices, exchange listing rules, and related matters, and the effect of such developments on, for example, the overall presentation, structure and content of the financial statements, including:

    • The relevance, reliability, comparability and understandability of the information presented in the financial statements; and
    • Considering whether the financial statements are undermined by the inclusion of information that is not relevant or that obscures a proper understanding of the matters disclosed.

  • The responses of those charged with governance to previous communications with the auditor.

  • The documents comprising the other information (as defined in CAS 720) and the planned manner and timing of the issuance of such documents. When the auditor expects to obtain other information after the date of the auditor’s report, the discussions with those charged with governance may also include the actions that may be appropriate or necessary if the auditor concludes that a material misstatement of the other information exists in other information obtained after the date of the auditor’s report.

While communication with those charged with governance may assist the auditor to plan the scope and timing of the audit, it does not change the auditor’s sole responsibility to establish the overall audit strategy and the audit plan, including the nature, timing and extent of procedures necessary to obtain sufficient appropriate audit evidence (CAS 260.A15).

Care is necessary when communicating with those charged with governance about the planned scope and timing of the audit so as not to compromise the effectiveness of the audit, particularly where some or all of those charged with governance are involved in managing the entity. For example, communicating the nature and timing of detailed audit procedures may reduce the effectiveness of those procedures by making them too predictable (CAS 260.A16).

CAS 210 requires the auditor to agree the terms of the audit engagement with management or those charged with governance, as appropriate. The agreed terms of the audit engagement are required to be recorded in an audit engagement letter or other suitable form of written agreement and include, among other things, reference to the expected form and content of the auditor’s report. As explained in paragraph A9, if the terms of engagement are not agreed with those charged with governance, the auditor may provide those charged with governance with a copy of the engagement letter to communicate about matters relevant to the audit. The communication required by paragraph 16(d) is intended to inform those charged with governance about circumstances in which the auditor’s report may differ from its expected form and content or may include additional information about the audit that was performed. (CAS 260.A23)

OAG Guidance

To comply with communication requirements, engagement teams use our template “Report to the Audit Committee—Annual Audit Plan.” The template is found on our INTRAnet site in both official languages.

The Report to the Audit Committee—Annual Audit Plan should be prepared and circulated to members of the committee well in advances of the meeting. Before the report is finalized, entity management should have an opportunity to comment on a draft of the report. The team should communicate in writing, in the entity’s language of choice, and be prepared to communicate in both official languages. If the entity requests written communications in both languages, they must be sent at the same time. The report on the audit plan and approach is normally sent under the signature of the engagement leader.

Not all of our annual audit entities have a body charged with oversight responsibility for the financial statements reporting process. There are numerous situations in our practice that require the Office to report to a body other than an audit committee. For example, in the annual audit of the Public Accounts of Canada, the Office prepares a report to the Secretary of the Treasury Board, the Deputy Minister of Finance, and the Deputy Receiver General for Canada outlining its planned approach. When reporting to a body other than an audit committee, the audit team adapts the template Report to the Audit Committee—Annual Audit Plan.

OAG Guidance

For All Engagements

Hold a discussion with those charged with governance about the client’s business risks to consider the impact on the audit, including whether those business risks result in significant risks. See OAG Audit 5043.3.

With increased emphasis on corporate governance, understanding the Company’s business risks is an even more important part of the role of those charged with governance. Although we expect them to work closely with management, they will have an independent perspective on business risks, which is important for us to understand.

Those charged with governance may verify their understanding of the risk areas that require their attention, including our preliminary views about the key audit matters that may be included in the audit report, use of specialists, auditor’s expert and internal audit or equivalent function.

Communicate potential key audit matters that may be included in the audit report on a timely basis. If potential key audit matters are identified as part of planning (e.g., areas that require our significant attention), communicate those matters to management and those charged with governance, as appropriate. Refer to OAG Audit 8015 for guidance on identifying and communicating key audit matters.

Our A&C process assists engagement leaders in evaluating the professional risks related to the client and engagement, but may also help identify significant risks as a result of evaluating the information used to complete the A&C assessment. Use judgment to determine whether these risks need to be considered significant risks in audit planning.

Format and Timing

The discussion with those charged with governance begins early in the audit process, during the planning phase of the engagement. Early communication of risks may enhance the client’s awareness and provide greater opportunity to address items with management on a timely basis.

Detailed Guidance

Our audit approach presents the work that we are going to perform to address the risk. It is important that we are prepared to comment on situations where we consider management’s response inadequate, including financial statement disclosure. Our response includes how we will respond to the risks either through validating controls and/or obtaining substantive audit evidence.

In rare instances where identified business risks involve senior management (i.e., risk of management override of controls, management attitudes, fraud risks), have a discussion with those charged with governance in a private meeting, without management present. This is a significant communication that requires professional judgment and consultation. Before presenting any information on risks involving senior management to those charged with governance, consult in accordance with OAG Audit 3081 and, if necessary, Legal Services.

If we identify business risks that management has failed to identify, and we determine that the underlying business risk had to be identified as part of the client’s risk assessment process, we need to consider:

  • why that process failed, and
  • if the client’s risk management process is appropriately designed and operating effectively.

If we determine that there is a significant deficiency in the risk assessment process, we need to communicate this matter to those charged with governance in writing.

Consistent with our audit approach, we will assess strategic, operational, financial reporting (including fraud and error), and compliance risks to form our view on the risk of material misstatement in the entity’s financial statements early in, and throughout, the audit process.

Detailed Guidance

In general, those charged with governance and management want to better understand and discuss our audit approach. Ultimately it is the engagement team that determines the nature, timing, and scope of work, though a discussion of the strategy can improve our focus on risk and the overall quality of the audit.

Through planning discussions with management, financial and non-financial, we can develop a good understanding of the client’s business, industry, business objectives, risks, and related controls. These discussions help us frame the audit.

As part of developing our audit strategy and plan, include an element of unpredictability (see OAG Audit 5500). Accordingly, our discussion of the summary audit strategy and plan is not at a level of detail that would enable the client to identify all of the auditing procedures we plan to perform. We explain to the client that, as part of our overall response to fraud risk, we incorporate unpredictability into our audit by modifying the nature, extent, and timing of procedures.

Significant findings from the audit

CAS Requirement

The auditor shall communicate with those charged with governance (CAS 260.16):

(a) The auditor’s views about significant qualitative aspects of the entity’s accounting practices, including accounting policies, accounting estimates and financial statement disclosures. When applicable, the auditor shall explain to those charged with governance why the auditor considers a significant accounting practice that is acceptable under the applicable financial reporting framework, not to be most appropriate to the particular circumstances of the entity;

(b) Significant difficulties, if any, encountered during the audit;

(c) Unless all of those charged with governance are involved in managing the entity:

i. Significant matters arising during the audit that were discussed, or subject to correspondence, with management; and

ii. Written representations the auditor is requesting;

(d) Circumstances that affect the form and content of the auditor’s report, if any; and

(e) 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.

CAS Guidance

The communication of findings from the audit may include requesting further information from those charged with governance in order to complete the audit evidence obtained. For example, the auditor may confirm that those charged with governance have the same understanding of the facts and circumstances relevant to specific transactions or events (CAS 260.A17).

When CAS 701 applies, the communications with those charged with governance required by paragraph 16, as well as the communication about the significant risks identified by the auditor required by paragraph 15, are particularly relevant to the auditor’s determination of matters that required significant auditor attention and which therefore may be key audit matters (CAS 260.A18).

Financial reporting frameworks ordinarily allow for the entity to make accounting estimates, and judgments about accounting policies and financial statement disclosures, for example, in relation to the use of assumptions in the development of accounting estimates. In addition, law, regulation or financial reporting frameworks may require disclosure of a summary of significant accounting policies or make reference to "critical accounting estimates" or "critical accounting policies and practices" to identify and provide additional information to users about the most difficult, subjective or complex judgments made by management in preparing the financial statements (CAS 260.A19).

As a result, the auditor’s views on the subjective aspects of the financial statements may be particularly relevant to those charged with governance in discharging their responsibilities for oversight of the financial reporting process. For example, in relation to the matters described in paragraph A19, those charged with governance may be interested in the auditor’s views on the degree to which complexity, subjectivity or other inherent risk factors affect the selection or application of the methods, assumptions and data used in making a significant accounting estimate, as well as the auditor’s evaluation of whether management’s point estimate and related disclosures in the financial statements are reasonable in the context of the applicable financial reporting framework. Open and constructive communication about significant qualitative aspects of the entity’s accounting practices also may include comment on the acceptability of significant accounting practices and on the quality of the disclosures. When applicable, this may include whether a significant accounting practice of the entity relating to accounting estimates is considered by the auditor not to be most appropriate to the particular circumstances of the entity, for example, when an alternative acceptable method for making an accounting estimate would, in the auditor’s judgment, be more appropriate. Appendix 2 identifies matters that may be included in this communication. (CAS 260.A20)

Significant difficulties encountered during the audit may include such matters as (CAS 260.A21):

  • Significant delays by management, the unavailability of entity personnel, or an unwillingness by management to provide information necessary for the auditor to perform the auditor’s procedures.

  • An unreasonably brief time within which to complete the audit.

  • Extensive unexpected effort required to obtain sufficient appropriate audit evidence.

  • The unavailability of expected information.

  • Restrictions imposed on the auditor by management.

  • Management’s unwillingness to make or extend its assessment of the entity’s ability to continue as a going concern when requested.

In some circumstances, such difficulties may constitute a scope limitation that leads to a modification of the auditor’s opinion. 

Significant matters discussed, or subject to correspondence with management may include such matters as (CAS 260.A22):

  • Significant events or transactions that occurred during the year.

  • Business conditions affecting the entity, and business plans and strategies that may affect the risks of material misstatement.

  • Concerns about management’s consultations with other accountants on accounting or auditing matters.

  • Discussions or correspondence in connection with the initial or recurring appointment of the auditor regarding accounting practices, the application of auditing standards, or fees for audit or other services.

  • Significant matters on which there was disagreement with management, except for initial differences of opinion because of incomplete facts or preliminary information that are later resolved by the auditor obtaining additional relevant facts or information.

Circumstances in which the auditor is required or may otherwise consider it necessary to include additional information in the auditor’s report in accordance with the CASs, and for which communication with those charged with governance is required, include when (CAS 260.A24) :

  • The auditor expects to modify the opinion in the auditor’s report in accordance with CAS 705.

  • A material uncertainty related to going concern is reported in accordance with CAS 570.

  • Key audit matters are communicated in accordance with CAS 701.

  • The auditor considers it necessary to include an Emphasis of Matter paragraph or Other Matter paragraph in accordance with CAS 706 or is required to do so by other CASs.

  • The auditor has concluded that there is an uncorrected material misstatement of the other information in accordance with CAS 720.

In such circumstances, the auditor may consider it useful to provide those charged with governance with a draft of the auditor’s report to facilitate a discussion of how such matters will be addressed in the auditor’s report.

In the rare circumstances that the auditor intends not to include the name of the engagement partner in the auditor’s report in accordance with CAS 700, the auditor is required to discuss this intention with those charged with governance to inform the auditor’s assessment of the likelihood and severity of a significant personal security threat. The auditor also may communicate with those charged with governance in circumstances when the auditor elects not to include the description of the auditor’s responsibilities in the body of the auditor’s report as permitted by CAS 700 (CAS 260.A25).

CAS 300 notes that, as a result of unexpected events, changes in conditions, or the audit evidence obtained from the results of audit procedures, the auditor may need to modify the overall audit strategy and audit plan and thereby the resulting planned nature, timing and extent of further audit procedures, based on the revised consideration of assessed risks. The auditor may communicate with those charged with governance about such matters, for example, as an update to initial discussions about the planned scope and timing of the audit (CAS 260.A26).

Other significant matters arising during the audit that are directly relevant to those charged with governance in overseeing the financial reporting process may include such matters as material misstatements of the other information that have been corrected (CAS 260.A27).

To the extent not already addressed by the requirements in paragraphs 16(a)-(d) and related application material, the auditor may consider communicating about other matters discussed with, or considered by, the engagement quality reviewer, if one has been appointed (CAS 260.A28).

OAG Guidance

We communicate our audit findings through different means. We usually do it in writing in the Report to the Audit Committee—Annual Audit Results and the Management Letter, or we do it verbally depending on the significance of the finding and the CAS requirements.

Audit Findings Categories

To provide a framework for ranking of financial audit findings according to the risk they represent to the audit and the entity, and to improve consistency of reporting to management and to those charged with governance, audit findings are categorised into three categories using the following criteria:

Category A:

1) those matters that the CAS and/or Office policies require to be communicated irrespective of their significance; and

2) those matters which pose significant business or financial risk (including financial reporting risk and significant non-compliance with applicable legislation) to the audit or to the audit entity and should be addressed as a matter of urgency. This assessment has taken account of both the likelihood and consequences of the risk materializing.

Category B:

Those matters which pose moderate business or financial risk, including financial reporting risk, to the audit or to the audit entity, or matters referred to management in the past that have not been addressed satisfactorily. These would include matters where the consequences of the issue might be significant, however, there is little likelihood of the consequences materializing.

Category C:

Those matters which are procedural in nature or minor administrative failings. These could include minor accounting issues or relatively isolated control breakdowns that need to be brought to the attention of management and could also include non-compliance with legislation that is not significant.

Report to Management

All audit findings categorised in accordance with criteria A and B are to be reported to the appropriate level of management orally first and in writing in accordance with the CAS requirements when applicable. We usually do this in writing in a Management Letter or through other more appropriate means. Judgment may need to be exercised, as some sensitive matters can’t or shouldn’t be communicated in writing.

Audit findings categorised in accordance with criteria C are to be communicated to management orally or in writing in a Management Letter.

Determining the appropriate level of management to report to requires consideration of the management structure of the entity and is a matter of professional judgment. It is preferable to communicate category A and B audit findings to the highest levels of corporate management (CEO/CFO). Category C audit findings should normally be communicated to those individuals responsible for the particular functional area. Ordinarily, it would include the CFO or another member of management reporting through the CFO and can include those who have responsibilities for corporate functions and IT systems.

Report to Those Charged with Governance

As a minimum, category A and B audit findings shall be reported to those charged with governance in writing and in accordance with CAS requirements in the Report to the Audit Committee or through other more appropriate means such as a private phone conversation with the Chair of the Audit Committee to discuss a fraud matter. Judgment may need to be exercised as some sensitive matters can’t or shouldn’t be communicated in writing.

Our Financial Audit Templates deal with the entire communication requirements from those CASs and would be used to communicate with those charged with governance unless determined otherwise.

Making management and those charged with governance aware of potential issues and risks early helps reduce surprises and allows for timely resolutions.

Format and Timing

Ideally, present this communication on audit findings prior to year-end, but the timing will vary according to client practices. The auditor should communicate on a timely basis matters identified during the financial statement audit. In determining what constitutes a timely basis, the auditor would be guided by the significance of the matter and an assessment of its urgency.

The auditor may communicate orally as soon as practicable to those charged with governance about significant deficiencies in internal control that the auditor has identified, prior to communicating these in writing as required by CAS 265. Unless unusual circumstances exist, written communication with management and those charged with governance should occur within 60 days of the date of the audit report.

Detailed Guidance

Depending on the nature of the items identified, generally present this report to those charged with governance in the presence of management. It is essential that the governing body consider management’s response to these issues and/or risks. Also, be prepared to discuss our audit response and the impact on the financial statements. Depending on the size of the engagement, timing of completion, and other considerations, this topic may also be raised as part of the discussion on required communications.

Other items to consider communicating at this meeting are status of the audit, changes in audit scope, timing for audit completion, audit hours, significant adjustments, key audit matters and any required communications that are reported.

Determine that those charged with governance are informed about the initial selection of and changes in significant accounting policies or their application, the methods used to account for significant unusual transactions, and the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance. For example, significant accounting issues may exist in areas such as revenue recognition, off-balance-sheet financing, and accounting for equity investments.

Discussing our judgments about the quality, not just the acceptability, of the entity’s accounting principles as applied in its financial reporting applies only in certain regulatory environments (for example, it applies to SEC clients).

Management generally is an active participant in the discussion of our judgments about the quality of the accounting principles used, since management has primary responsibility for them. We can add value to the discussion by pointing out any accounting practices followed by the company that are not consistent with other entities in the same industry, and the impact on reported performance. The discussion includes such matters as consistency of accounting policies and their application, and clarity and completeness of the financial statements, including disclosures. Examples of such items are:

  • Selection of new or changed accounting policies.

  • Estimates, judgments, and uncertainties.

  • Unusual transactions.

  • Accounting policies relating to significant financial statement items, including timing of transactions and the period in which they are recorded.

Objective criteria have not been developed to aid in the consistent evaluation of the quality of an entity’s accounting principles. Accordingly, the discussion needs to be tailored to the entity’s circumstances, including accounting applications and practices not explicitly addressed in the accounting literature, such as those unique to an industry.

Quality of Balance Sheet

It is recommended, where appropriate, that the engagement leader reviews a summary of the material balance sheet accounts to ensure that those charged with governance are aware of the composition of the account balance, the risks, how they are controlled by management, and which accounts are affected by estimates or valuation adjustments (see section below) and how those were determined.

Management Judgments and Accounting Estimates

Inform those charged with governance about the process used by management in forming particularly sensitive accounting estimates, including fair value estimates, and about the basis for our conclusions regarding the reasonableness of those estimates. Regarding fair value estimates (for example, communicating the nature of significant assumptions used in fair value measurements), consider the degree of subjectivity involved in the development of the assumptions, and the relative materiality of the items being measured at fair value, to the financial statements as a whole. Both materiality and the reliability of the estimates are considered in determining whether an estimate is particularly sensitive.

Misstatements

As required by CAS 450, communicate to and discuss with management all misstatements accumulated during the audit, unless prohibited by law or regulation.

In addition, give consideration to whether an adjustment is indicative of a deficiency in the entity’s internal control that could cause future financial statements to be materially misstated. Such deficiencies may already have been identified for reporting to those charged with governance pursuant to sections dealing with deficiencies in internal control.

We also inform those charged with governance about the summary of uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented, that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Discussion of the summary of uncorrected misstatements and the items contained therein involves three parties—those charged with governance, management, and the OAG. Presenting this quantified information to those charged with governance is intended to enable them to understand management’s rationale for not recording the items. It also has the beneficial effect of encouraging the recording of recurring misstatements (or adopting accounting practices to eliminate this) to avoid management having to report those matters to those charged with governance year after year. Furthermore, it may encourage discussion about deficiencies in controls that could cause management to take actions that would reduce the potential for misstated financial statements in the future.

Both the OAG and management will have concluded that the items on the schedule, individually and in the aggregate, are immaterial. Nevertheless, based on subjective consideration of quantitative and qualitative factors individually and in combination, we and management make separate judgments about the materiality of the uncorrected misstatements. Accordingly, both our views and that of management are expressed to those charged with governance for their confirmation of their view on the adjustments.

Matters discussed generally include the following:

  • Management’s and the OAG’s views as to which items merit discussion with those charged with governance.

  • For each item discussed:

    • A description of the item and the type of misstatement, e.g., known accounting error, likely audit difference resulting from sampling applications, or estimated audit difference representing the difference between an estimate recorded by the entity and the closest amount in a range of acceptable amounts, where the entity’s estimate falls outside the range (see OAG Audit 7073.3).

    • Quantitative and qualitative factors considered by management and us in making our judgments.

    • Any internal controls that have prevented the misstatement, and our recommendations for improvement in controls, where applicable.

    • Where applicable, instances where management does not consider the item to be a misstatement and their reasoning.

  • Management’s reasons for not correcting the misstatements as well as any plans to correct them in the coming period and any practical steps taken or planned to avoid the misstatements in the future.

  • Overall, management’s and our consideration of the impact of aggregating or netting of misstatements in making their materiality judgments, including the fact that items below a “de minimis” amount are not accumulated.

Verify that those charged with governance are aware of the potential effect regarding risks and exposures that are required to be disclosed in the financial statements, such as pending litigation.

Analytical Procedures and Benchmarking

The engagement leader may consider discussing the results of analytical procedures and benchmarking, including any audit matters identified and our recommendations to the client to improve their business processes.

The presentation and/or key points of the discussion are maintained or documented in the audit documentation.

Name of the Engagement Partner

Note that when we intend not to include the name of the engagement partner in the auditor’s report for an audit of a listed entity, we are required to communicate this to management and those charged with governance, as appropriate.

Auditor independence

CAS Requirement

In the case of listed entities, the auditor shall communicate with those charged with governance (CAS 260.C17):

C(a) A statement that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence

(i) All relationships and other matters between the firm, network firms, and the entity that, in the auditor’s professional judgment, may reasonably be thought to bear on independence. This shall include total fees charged during the period covered by the financial statements for audit and non-audit services provided by the firm and network firms to the entity and components controlled by the entity. These fees shall be allocated to categories that are appropriate to assist those charged with governance in assessing the effect of services on the independence of the auditor; and

(ii) The related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level. [In ISA 260, this paragraph states: In respect of threats to independence that are not at an acceptable level, the actions taken to address the threats, including actions that were taken to eliminate the circumstances that create the threats, or applying safeguards to reduce the threats to an acceptable level.]

The auditor shall communicate in writing with those charged with governance regarding auditor independence when required by CAS 260 paragraph 17 (CAS 260.20).

CAS Guidance

The auditor is required to comply with relevant ethical requirements, including those related to independence, relating to financial statement audit engagements (CAS 260.A29).

The relationships and other matters, and safeguards to be communicated, vary with the circumstances of the engagement, but generally address (CAS 260.CA30):

(a) Threats to independence, which may be categorized as: self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats; and

(b) Safeguards created by the profession, legislation or regulation, safeguards within the entity, and safe-guards within the firm’s own systems and procedures

[In ISA 260, this paragraph states: The communication about relationships and other matters, and how threats to independence that are not at an acceptable level have been addressed varies with the circumstances of the engagement and generally addresses the threats to independence, safeguards to reduce the threats, and measures to eliminate circumstances that created threats.]

Relevant ethical requirements or law or regulation may also specify particular communications to those charged with governance in circumstances where breaches of independence requirements have been identified. For example, the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) requires the auditor to communicate with those charged with governance in writing about any breach and the action the firm has taken or proposes to take (CAS 260.A31).

The communication requirements relating to auditor independence that apply in the case of listed entities may also be appropriate in the case of some other entities, including those that may be of significant public interest, for example, because they have a larger number and wide range of stakeholders and considering the nature and size of the business. Examples of such entities may include financial institutions (such as banks, insurance companies, and pension funds) and other entities such as charities. On the other hand, there may be situations where communications regarding independence may not be relevant, for example, where all of those charged with governance have been informed of relevant facts through their management activities. This is particularly likely where the entity is owner-managed, and the auditor’s firm and network firms have little involvement with the entity beyond a financial statement audit (CAS 260.A32).

OAG Guidance

We confirm our independence for all entities. We confirm our independence through the Report to the Audit Committee—Annual Audit Plan. At year end, we confirm that we remained independent throughout the audit through the Report to the Audit Committee—Annual Audit Results.

The engagement leader should be prepared to discuss the quality control processes that the OAG has established to ensure our continuing independence.

Specific communication required by other CASs

CAS Guidance

Specific Requirements in CSQM 1 and Other CASs that require communication of specific matters with those charged with governance. (CAS 260.Appendix1)

The list is not a substitute for considering the requirements and related application and other explanatory material in CASs.

  • CSQM 1, “Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements”—paragraph 34(e)

  • CAS 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements”—paragraphs 21, 38(c)(i) and 40‑42

  • CAS 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”—paragraphs 15, 20 and 23-25

  • CAS 265, “Communicating Deficiencies in Internal Control to Those Charged with Governance and Management”—paragraph 9

  • CAS 450, “Evaluation of Misstatements Identified during the Audit”—paragraphs 12‑13

  • CAS 505, “External Confirmations”—paragraph 9

  • CAS 510, “Initial Audit Engagements—Opening Balances”—paragraph 7

  • CAS 540, “Auditing Accounting Estimates and Related Disclosures”—paragraph 38

  • CAS 550, “Related Parties”—paragraph 27

  • CAS 560, “Subsequent Events”—paragraphs 7(b)–(c), 10(a), 13(b), 14(a) and 17

  • CAS 570, “Going Concern”—paragraph 25

  • CAS 600, “Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)”—paragraph 49

  • CAS 610, “Using the Work of Internal Auditors”—paragraphs 20 and 31
    CAS 700, “Forming an Opinion and Reporting on Financial Statements”—paragraph 46
    CAS 701, “Communicating Key Audit Matters in the Independent Auditor’s Report”—paragraph 17

  • CAS 705, “Modifications to the Opinion in the Independent Auditor’s Report”—paragraphs 12, 14, 23 and 30

  • CAS 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”—paragraph 12

  • CAS 710, “Comparative Information-Corresponding Figures and Comparative Financial Statements”—paragraph 18

  • CAS 720, “The Auditor’s Responsibilities Relating to Other Information”—paragraphs 17‑19

OAG Guidance

Consultation with other accountants

When we are aware that management has consulted with other accountants about significant accounting and auditing matters, communicate our views about the subject of the consultation to those charged with governance.

If the other accountant’s opinion differs from our views, based on the nature of the subject matter, the engagement leader is required to consult in accordance with OAG Audit 3081 before communicating with management or those charged with governance.

Supplementary matters

CAS Guidance

The oversight of management by those charged with governance includes ensuring that the entity designs, implements and maintains appropriate internal control with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations (CAS 260.A33).

The auditor may become aware of supplementary matters that do not necessarily relate to the oversight of the financial reporting process but which are, nevertheless, likely to be significant to the responsibilities of those charged with governance in overseeing the strategic direction of the entity or the entity’s obligations related to accountability. Such matters may include, for example, significant issues regarding governance structures or processes, and significant decisions or actions by senior management that lack appropriate authorization (CAS 260.A34).

In determining whether to communicate supplementary matters with those charged with governance, the auditor may discuss matters of this kind of which the auditor has become aware with the appropriate level of management, unless it is inappropriate to do so in the circumstances (CAS 260.A35).

If a supplementary matter is communicated, it may be appropriate for the auditor to make those charged with governance aware that (CAS 260.A36):

(a) Identification and communication of such matters is incidental to the purpose of the audit, which is to form an opinion on the financial statements;

(b) No procedures were carried out with respect to the matter other than any that were necessary to form an opinion on the financial statements; and

(c) No procedures were carried out to determine whether other such matters exist.