## SA 260: Communication with Those Charged with Governance (TCWG)

### Who Are TCWG?

Those Charged with Governance are persons or bodies responsible for overseeing the financial reporting process of an entity.

The auditor uses SA 315 to understand who TCWG is in each engagement.

In listed entities, TCWG typically includes:

Audit Committee
Supervisory Body
Independent Directors

> Management is clearly NOT TCWG. Management executes; TCWG oversees.

TCWG responsibilities:

Oversee the financial reporting process
Take strategic decisions of the entity
Be accountable for the firm's actions

Small entities: Where no governance hierarchy exists, management itself may serve as TCWG.

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### Objectives of the Auditor (SA 260)

1. Communicate clearly the auditor's responsibilities, and give an overview of the planned scope and timing of the audit.

2. Communicate significant matters arising from the audit in a timely manner.

3. Obtain information from TCWG relevant to the audit.

4. Promote effective two-way communication between auditor and TCWG.

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### Benefits of Effective Two-Way Communication

Beneficiary	Benefit
Auditor	Better understanding of matters relevant to TCWG
Both	Constructive working relationship (without compromising independence)
Auditor	Easier to obtain information relevant to the audit
TCWG	Better ability to oversee the financial reporting process

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### Matters to Be Communicated by the Auditor

i) Responsibilities of the Auditor

Communicate that the auditor's role is to form an opinion (expressed in the Audit Report).
This does not relieve management of their responsibility to oversee the financial reporting process.

ii) Planned Scope and Timing of Audit

Overview of planned scope and timing.
Significant matters that arise during the audit.

iii) Significant Findings from the Audit

(a) Auditor's view on qualitative aspects of the entity's accounting practices, policies, estimates, and disclosures.
(b) Significant difficulties encountered during the audit.
(c) Significant matters communicated to management, including matters where Written Representation (WIR) is requested.
(d) Circumstances affecting the form/content of the Audit Report (e.g., modifications).
(e) Any other significant matter that, in the auditor's professional judgment, is important for TCWG in overseeing the financial reporting process.

iv) Independence Requirements (Listed Entities only)

In the case of listed entities, the auditor must communicate independence-related matters to TCWG.

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### Key Distinction: Timely Communication

Communication must be timely — not just at the end of the audit. Significant matters discovered during fieldwork should be communicated as they arise, not saved for the final report.

Worked example

### Example 1

Example 1 — Identifying TCWG:

ABC Ltd is a listed company. The CFO argues that since management handles all financial reporting, there is no separate TCWG. Is the CFO correct?

Answer: No. In a listed company, the Audit Committee, Supervisory Body, and Independent Directors collectively form TCWG. Management (including the CFO) is distinctly separate. The auditor must identify and communicate with these bodies, not just management. SA 315 guides the auditor in making this identification.

### Example 2

Example 2 — Matters to Communicate:

During the audit of XYZ Ltd, the auditor discovers (a) management uses aggressive revenue recognition estimates, and (b) management refused to provide certain documents for two weeks. What must the auditor communicate to TCWG?

Answer:

(a) Auditor's view on the qualitative aspect of accounting policies/estimates — specifically the aggressive revenue recognition treatment — must be communicated as a significant finding.
(b) The significant difficulty encountered (denial of documents) must also be communicated under significant findings.

Both are mandatory communications under SA 260.

### Example 3

Example 3 — Two-Way Communication:

An auditor issues a written report to the Audit Committee at year-end and considers communication complete. Is this sufficient under SA 260?

Answer: Not necessarily. SA 260 requires effective two-way communication, meaning the auditor must also obtain information from TCWG relevant to the audit. One-way reporting to TCWG does not satisfy this objective. The auditor must actively seek inputs, flag matters during the audit (not just at year-end), and establish a constructive working relationship.

⚠️ Common exam mistakes

Treating Management and TCWG as the same — Management executes; TCWG oversees. They are always distinct concepts, even if sometimes the same persons in small entities.
Thinking SA 260 communication relieves management of responsibility — it does not. The auditor's opinion does not transfer management's duty to oversee financial reporting.
Forgetting that communication must be TIMELY — significant matters discovered mid-audit must be communicated then, not held until the final report.
Omitting the independence communication requirement for listed entities — this is a separate and mandatory requirement only for listed entities.
Describing SA 260 as one-way reporting — SA 260 specifically requires two-way communication; obtaining information from TCWG is equally part of the objective.
Forgetting that in small entities with no governance hierarchy, management may itself be TCWG — this is a specific exception to address in exam scenarios.

Reference: SA 260 — SA 260 – Communication with Those Charged with Governance (ICAI)

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SA 260 - Communication with Those Charged with Governance (TCWG)

Worked example

⚠️ Common exam mistakes