Annual Audit Manual
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2344 Communicating with group management and those charged with governance of the group
Oct-2012
In This Section
Communication with Those Charged with Governance of the Group
Overview
This section discusses:
- Matters to be communicated to group management
- Communication with those charged with governance of the group relating to, or resulting from, the component auditors' work
Detailed guidance relating to client communications is included in OAG Audit 2200. This section provides additional guidance for group audits.
CAS Requirement
The group engagement team shall determine which identified deficiencies in internal control to communicate to those charged with governance and group management in accordance with CAS 265.11. In making this determination, the group engagement team shall consider (CAS 600.46):
(a) deficiencies in group-wide internal control that the group engagement team has identifie,
(b) deficiencies in internal control that the group engagement team has identified in internal controls at components, and
(c) deficiencies in internal control that component auditors have brought to the attention of the group engagement team.
If fraud has been identified by the group engagement team or brought to its attention by a component auditor (see paragraph 41(h)), or information indicates that a fraud may exist, the group engagement team shall communicate this on a timely basis to the appropriate level of group management in order to inform those with primary responsibility for the prevention and detection of fraud of matters relevant to their responsibilities (CAS 600.47).
A component auditor may be required by statute, regulation or for another reason, to express an audit opinion on the financial statements of a component. In that case, the group engagement team shall request group management to inform component management of any matter of which the group engagement team becomes aware that may be significant to the financial statements of the component, but of which component management may be unaware. If group management refuses to communicate the matter to component management, the group engagement team shall discuss the matter with those charged with governance of the group. If the matter remains unresolved, the group engagement team, subject to legal and professional confidentiality considerations, shall consider whether to advise the component auditor not to issue the auditor's report on the financial statements of the component until the matter is resolved (CAS 600.48).
CAS Guidance
CAS 240.40-42 contains requirements and guidance on communication of fraud to management and, where management may be involved in the fraud, to those charged with governance (CAS 600.A64).
Group management may need to keep certain material sensitive information confidential. Examples of matters that may be significant to the financial statements of the component of which component management may be unaware include the following (CAS 600.A65):
- Potential litigation.
- Plans for abandonment of material operating assets.
- Subsequent events.
- Significant legal agreements.
CAS Requirement
The group engagement team shall communicate the following matters with those charged with governance of the group, in addition to those required by CAS 260 and other CASs (CAS 600.49):
(a) An overview of the type of work to be performed on the financial information of the components.
(b) An overview of the nature of the group engagement team's planned involvement in the work to be performed by the component auditors on the financial information of significant components.
(c) Instances where the group engagement team's evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor's work.
(d) Any limitations on the group audit, for example, where the group engagement team's access to information may have been restricted.
(e) Fraud or suspected fraud involving group management, component management, employees who have significant roles in group- wide controls or others where the fraud resulted in a material misstatement of the group financial statements.
CAS Guidance
CAS 600 includes specific matters to be communicated by group auditors with those charged with governance. When the entity is a component of a group, the appropriate person(s) with whom the component auditor communicates depends on the engagement circumstances and the matter to be communicated. In some cases, a number of components may be conducting the same businesses within the same system of internal control and using the same accounting practices. Where those charged with governance of those components are the same (e.g., common board of directors), duplication may be avoided by dealing with these components concurrently for the purpose of communication (CAS 260.A4).
OAG Guidance
When reporting according to CAS 600.49(c), minor concerns or issues that have been resolved to the group engagement team's satisfaction are not relevant matters to report. If the group engagement team's evaluation of the component auditor's work gave rise to a concern such that the group engagement team had to undertake substantial additional procedures or would substantially limit the use of the component auditor's work, this would be relevant for reporting to those charged with governance of the group.
The group engagement team also needs to determine which of the issues communicated by the component auditor in accordance with CAS 600.41 (OAG Audit 2343) needs to be communicated to Those Charged with Governance of the Group.
CAS Guidance
The matters the group engagement team communicates to those charged with governance of the group may include those brought to the attention of the group engagement team by component auditors that the group engagement team judges to be significant to the responsibilities of those charged with governance of the group. Communication with those charged with governance of the group takes place at various times during the group audit. For example, the matters referred to in paragraph 49(a)-(b) may be communicated after the group engagement team has determined the work to be performed on the financial information of the components. On the other hand, the matter referred to in paragraph 49(c) may be communicated at the end of the audit, and the matters referred to in paragraph 49(d)-(e) may be communicated when they occur (CAS 600.A66).