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SA 260 — Communication with Those Charged with Governance

Think of SA 260 as the official conversation rulebook between the auditor and the people who run the company at the top — not the day-to-day managers, but the Board of Directors, Audit Committee, or Managing Committee. These people are called Those Charged with Governance (TCWG). The standard exists because an audit isn't done in silence — the auditor must keep the right people informed, at the right time, about the right things.

SA 260 tells the auditor what to communicate, to whom, when, and how. The four big things the auditor must communicate to TCWG are: (1) the auditor's responsibilities under SA — basically, what the auditor is and isn't responsible for; (2) the planned scope and timing of the audit — not every detail, but enough for TCWG to understand the overall approach; (3) significant findings from the audit — this includes significant difficulties encountered, significant matters arising, written representations requested, and any uncorrected misstatements; and (4) auditor's independence — especially critical when the auditor or firm has provided non-audit services.

A super important nuance: management ≠ TCWG. In a large listed company like Reliance Industries, the CFO (management) and the Audit Committee (TCWG) are different people. But in a small private company like Sharma Textiles Pvt. Ltd., the same person — Mr. Sharma — may be both the owner-manager and the sole director. SA 260 says that in such cases, if all TCWG members are also part of management, the auditor need not communicate separately to TCWG what has already been communicated to management. This is a frequently tested distinction in 4-mark and 8-mark questions.

On timing: communication should be timely — not after the audit report is signed. Significant matters should be flagged early enough for TCWG to act. On form: oral communication is acceptable, but significant matters must be in writing. If the auditor decides to communicate orally, the file must document what was communicated, when, and to whom. SA 260 doesn't prescribe a fixed format, but the communication must be clear and not misleading.

📊 Worked example

Example 1 — Identifying TCWG and the Communication Requirement

Setup: You are the auditor of Mehta & Sons Pvt. Ltd. The company has a Board of three directors: Mr. Mehta (MD), Mrs. Mehta (Director), and an independent director, Mr. Iyer. Mr. Iyer chairs the Audit Committee. During the audit, you discover a ₹12,00,000 misstatement in revenue that management refuses to correct.

Working:

  • Step 1 — Identify TCWG: The Audit Committee (Mr. Iyer) and the full Board are TCWG.
  • Step 2 — Is this a significant finding? Yes. An uncorrected misstatement of ₹12,00,000 is significant and must be communicated under SA 260.
  • Step 3 — Form of communication: Since this is a significant matter, it must be in writing (not just discussed verbally at a meeting).
  • Step 4 — Timing: Must be communicated before the audit report is issued so TCWG can take action.

Answer: The auditor must send a written communication to the Audit Committee (TCWG) detailing the uncorrected misstatement of ₹12,00,000, its nature, and its effect on the financial statements.

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Example 2 — TCWG Same as Management Exception

Setup: Ms. Iyer is the sole proprietor-director of Iyer Consultants Pvt. Ltd. She is both the managing director (management) and the only member of the Board (TCWG). During the audit, you discuss significant audit findings with her as management.

Working:

  • Since Ms. Iyer is both management and all of TCWG, a separate formal communication to TCWG would be redundant.
  • SA 260 permits: if all TCWG members are also part of management, the auditor need not repeat the same communication to TCWG.
  • However, the auditor must still document that this conclusion was reached and why.

Answer: No separate written communication to TCWG is required. The auditor's discussion with Ms. Iyer as management is sufficient, provided it is documented in the working papers.

⚠️ Common exam mistakes

  • Students confuse Management with TCWG. Management executes decisions; TCWG oversees them. In large companies, the Audit Committee is TCWG, not the CFO or CEO. Don't write 'communicated to management' when the question asks about TCWG obligations.
  • Students think oral communication is never allowed. SA 260 allows oral communication, but significant matters must be backed by written communication. If you say 'all communication must be in writing', that's wrong — it depends on the significance of the matter.
  • Students forget the independence communication requirement. SA 260 specifically requires the auditor to communicate about independence (including threats and safeguards) to TCWG — especially relevant when the firm provides non-audit services. This is a favourite exam add-on point.
  • Students apply the TCWG = Management exception too broadly. This exception applies only when ALL TCWG members are also part of management. If even one independent director exists, the exception does not apply and separate communication is needed.
  • Students miss the timing element. Writing 'the auditor will communicate after issuing the report' is wrong. SA 260 requires timely communication — significant matters must be raised before the audit report is signed so TCWG has the opportunity to respond.
📖 Reference: SA 260 — Institute of Chartered Accountants of India
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