ISA 260

Presented by: Eisha Jamshaid (FA20 BBA 047)

What is ISA 260?
◦ Certainly, International Standard on Auditing (ISA) 260, titled "Communication with Those Charged
with Governance," is a crucial standard that guides auditors in establishing effective communication with
the individuals or entities responsible for overseeing the direction of an organization. In simpler terms, it
outlines how auditors should interact with the key decision-makers within a company or entity.
Key Components
1. Importance of Communication:

Effective communication is essential in any relationship, and the auditor-client relationship is no exception.
ISA 260 recognizes the significance of communication between auditors and those charged with
governance (often the board of directors or equivalent). These individuals play a pivotal role in making
strategic decisions and overseeing the management of the organization.
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2. Objectives of Communication:

◦ Understanding Roles and Responsibilities: ISA 260 emphasizes that both auditors and those charged with
governance should have a clear understanding of their respective roles and responsibilities. This helps in avoiding
misunderstandings and ensuring that everyone is on the same page regarding expectations.

◦ Exchanging Information: Communication is a two-way street. Auditors need to obtain relevant information from
those charged with governance to better understand the business environment, risks, and other factors that might
impact the audit. Conversely, auditors need to communicate their findings and any significant matters to those charged
with governance.

◦ Timely Identification of Issues: ISA 260 highlights the importance of identifying and addressing significant matters
in a timely manner. This includes issues related to financial reporting, internal controls, and any other matters that
might impact the audit or the organization's operations.
Key Principles
◦ Early Communication: Auditors are encouraged to communicate with those charged with governance
as early as possible. Early communication allows for a proactive approach to addressing potential issues
and ensures that both parties are well-informed throughout the audit process.

◦ Significant Matters: Auditors are required to communicate significant matters to those charged with
governance. This includes issues related to accounting policies, estimates, and judgments, as well as any
identified deficiencies in internal control.

◦ Management Representations: ISA 260 acknowledges that auditors often rely on representations made
by management during the audit process. However, it also emphasizes that auditors should not solely
rely on these representations and should corroborate them with other audit evidence.
Practical Application
◦ Initial Meetings: Auditors typically have an initial meeting with those charged with governance to discuss the
scope and timing of the audit, as well as to establish a mutual understanding of roles and responsibilities.

◦ Ongoing Communication: Throughout the audit, auditors maintain open lines of communication with those
charged with governance. This includes providing updates on the progress of the audit and discussing any
emerging issues.

◦ Audit Plan Development:

◦ The auditor communicates key matters related to audit planning, including the scope of the audit, significant audit risks,
and materiality considerations with those charged with governance.

◦ This communication ensures alignment between the auditor and the entity's governance on the audit approach.
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◦ Discussing Significant Findings:
◦ ISA 260 requires the auditor to communicate significant findings, including identified weaknesses in internal
control or instances of fraud, with those charged with governance.

◦ Timely communication allows the governance body to take appropriate actions to address the identified issues.

◦ Final Communication: At the conclusion of the audit, auditors communicate the overall audit strategy,
results, and any significant findings to those charged with governance. This final communication ensures
transparency and provides an opportunity for feedback.
Conclusion
◦ ISA 260, "Communication with Those Charged with Governance," is a foundational standard that
promotes effective communication between auditors and the key decision-makers in an organization. By
establishing clear lines of communication and addressing significant matters in a timely manner, auditors
contribute to the overall transparency and reliability of financial reporting. In simpler terms, it's about
auditors and company leaders staying on the same page throughout the audit process to ensure the best
possible outcomes for the organization and its stakeholders.