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SA 260 Governance Communication

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SA 260(Revised)*
Communication with Those Charged with
Governance
(Effective for audits of financial statements for periods
beginning on or after April 1, 2017)

Contents
Paragraph(s)
Introduction
Scope of this SA ............................................................................. 1−3
The Role of Communication ................................................................. 4−7
Effective Date ............................................................................................ 8
Objectives ................................................................................................ 9
Definitions .............................................................................................. 10
Requirements
Those Charged with Governance ..................................................... 11−13
Matters to Be Communicated ........................................................... 14−17
The Communication Process ............................................................ 18−22
Documentation ........................................................................................ 23
Application and Other Explanatory Material
Those Charged with Governance .................................................... A1−A8
Matters to Be Communicated ........................................................ A9−A36
The Communication Process ....................................................... A37−A53
Documentation ...................................................................................... A54
Appendix 1: Specific Requirements in SQC 1 and Other SAs that Refer
to Communications with Those Charged with Governance
Appendix 2: Qualitative Aspects of Accounting Practices

Standard on Auditing (SA) 260 (Revised), “Communication with Those
Charged with Governance”, should be read in the context of the “Preface
to the Standards on Quality Control, Auditing, Review, Other Assurance
and Related Services”, which sets out the authority of SAs and SA 200,
“Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with Standards on Auditing”.

* Issued in May 2016.
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditor’s responsibility to
communicate with those charged with governance in an audit of financial
statements. Although this SA applies irrespective of an entity’s governance
structure or size, particular considerations apply where all of those charged with
governance are involved in managing an entity, and for listed entities. This SA
does not establish requirements regarding the auditor’s communication with an
entity’s management or owners unless they are also charged with a governance
role.
2. This SA is written in the context of an audit of financial statements, but may
also be applicable, adapted as necessary in the circumstances, to audits of other
historical financial information when those charged with governance have a
responsibility to oversee the preparation of the other historical financial
information.
3. Recognizing the importance of effective two-way communication in an audit
of financial statements, this SA provides an overarching framework for the
auditor’s communication with those charged with governance, and identifies
some specific matters to be communicated with them. Additional matters to be
communicated, which complement the requirements of this SA, are identified in
other SAs (see Appendix 1). In addition, SA 2651 establishes specific
requirements regarding the communication of significant deficiencies in internal
control the auditor has identified during the audit to those charged with
governance. Further matters, not required by this or other SAs, may be required
to be communicated 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. Nothing in this SA
precludes the auditor from communicating any other matters to those charged
with governance. (Ref: Para. A33–A36)
The Role of Communication
4. This SA focuses primarily on communications from the auditor to those
charged with governance. Nevertheless, effective two-way communication is
important in assisting:
a. The auditor and those charged with governance in understanding matters
related to the audit in context, and in developing a constructive working

1 SA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and

Management.

SA 260(Revised) 2
relationship. This relationship is developed while maintaining the auditor’s
independence and objectivity;
b. The auditor in obtaining from those charged with governance information
relevant to the audit. For example, those charged with governance may
assist the auditor in understanding the entity and its environment, in
identifying appropriate sources of audit evidence, and in providing
information about specific transactions or events; and
c. Those charged with governance in fulfilling their responsibility to oversee
the financial reporting process, thereby reducing the risks of material
misstatement of the financial statements.
5. Although the auditor is responsible for communicating matters required by
this SA, management also has a responsibility to communicate matters of
governance interest to those charged with governance. Communication by the
auditor does not relieve management of this responsibility.
Similarly, communication by management with those charged with governance of
matters that the auditor is required to communicate does not relieve the auditor
of the responsibility to also communicate them. Communication of these matters
by management may, however, affect the form or timing of the auditor’s
communication with those charged with governance.
6. Clear communication of specific matters required to be communicated by
SAs is an integral part of every audit. SAs do not, however, require the auditor to
perform procedures specifically to identify any other matters to communicate with
those charged with governance.
7. Law or regulation may restrict the auditor’s communication of certain
matters with those charged with governance. For example, laws or regulations
may specifically prohibit a communication, or other action, that might prejudice
an investigation by an appropriate authority into an actual, or suspected, illegal
act. In some circumstances, potential conflicts between the auditor’s obligations
of confidentiality and obligations to communicate may be complex. In such
cases, the auditor may consider obtaining legal advice.
Effective Date
8. This SA is effective for audits of financial statements for periods beginning
on or after April 1, 2017.
Objectives
9. The objectives of the auditor are:
(a) To communicate clearly with those charged with governance the

3 SA 260(Revised)
responsibilities of the auditor in relation to the financial statement audit, and
an overview of the planned scope and timing of the audit;
(b) To obtain from those charged with governance information relevant to the
audit;
(c) To provide those charged with governance with timely observations arising
from the audit that are significant and relevant to their responsibility to
oversee the financial reporting process; and
(d) To promote effective two-way communication between the auditor and
those charged with governance.
Definitions
10. For purposes of the SAs, the following terms have the meanings attributed
below:
(a) Those charged with governance – The person(s) or organization(s) (e.g., a
corporate trustee) with responsibility for overseeing the strategic direction of
the entity and obligations related to the accountability of the entity. This
includes overseeing the financial reporting process. For some entities,
those charged with governance may include management personnel, for
example, executive members of a governance board of a private or public
sector entity, or an owner-manager. For discussion of the diversity of
governance structures, see paragraphs A1–A8.
(b) Management – The person(s) with executive responsibility for the conduct
of the entity’s operations. For some entities, management includes some or
all of those charged with governance, for example, executive members of a
governance board, or an owner-manager.
Requirements
Those Charged with Governance
11. The auditor shall determine the appropriate person(s) within the entity’s
governance structure with whom to communicate. (Ref: Para. A1–A4)
Communication with a Subgroup of Those Charged with Governance
12. If the auditor communicates with a subgroup of those charged with
governance, for example, an audit committee, or an individual, the auditor shall
determine whether the auditor also needs to communicate with the governing
body. (Ref: Para. A5–A7)

SA 260(Revised) 4
When All of Those Charged with Governance Are Involved in Managing the
Entity
13. In some cases, all of those charged with governance are involved in
managing the entity, for example, a small business where a single owner
manages the entity and no one else has a governance role. In these cases, if
matters required by this SA are communicated with person(s) with management
responsibilities, and those person(s) also have governance responsibilities, the
matters need not be communicated again with those same person(s) in their
governance role. These matters are noted in paragraph 16(c). The auditor shall
nonetheless be satisfied that communication with person(s) with management
responsibilities adequately informs all of those with whom the auditor would
otherwise communicate in their governance capacity. (Ref: Para. A8)
Matters to Be Communicated
The Auditor’s Responsibilities in Relation to the Financial Statement Audit
14. The auditor shall communicate with those charged with governance the
responsibilities of the auditor in relation to the financial statement audit, including
that:
(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. (Ref: Para. A9–A10)
Planned Scope and Timing of the Audit
15. 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. (Ref: Para.
A11–A16)
Significant Findings from the Audit
16. The auditor shall communicate with those charged with governance: (Ref:
Para. A17–A18)
(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; (Ref: Para. A19–A20)
5 SA 260(Revised)
(b) Significant difficulties, if any, encountered during the audit; (Ref: Para. A21)
(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 (Ref: Para. A22)
ii. Written representations the auditor is requesting;
(d) Circumstances that affect the form and content of the auditor’s report, if
any; and (Ref: Para. A23–A25)
(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. (Ref: Para. A26– A28)
Auditor Independence
17. In the case of listed entities, the auditor shall communicate with those
charged with governance:
(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; and
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. (Ref:
Para. A29–A32)
The Communication Process
Establishing the Communication Process
18. The auditor shall communicate with those charged with governance the
form, timing and expected general content of communications. (Ref: Para. A37–
A45)

SA 260(Revised) 6
Forms of Communication
19. The auditor shall communicate in writing with those charged with
governance regarding significant findings from the audit if, in the auditor’s
professional judgment, oral communication would not be adequate. Written
communications need not include all matters that arose during the course of the
audit. (Ref: Para. A46–A48)
20. The auditor shall communicate in writing with those charged with
governance regarding auditor independence when required by paragraph 17.
Timing of Communications
21. The auditor shall communicate with those charged with governance on a
timely basis. (Ref: Para. A49–A50)
Adequacy of the Communication Process
22. The auditor shall evaluate whether the two-way communication between
the auditor and those charged with governance has been adequate for the
purpose of the audit. If it has not, the auditor shall evaluate the effect, if any, on
the auditor’s assessment of the risks of material misstatement and ability to
obtain sufficient appropriate audit evidence, and shall take appropriate action.
(Ref: Para. A51–A53)
Documentation
23. Where matters required by this SA to be communicated are communicated
orally, the auditor shall include them in the audit documentation, and when and to
whom they were communicated. Where matters have been communicated in
writing, the auditor shall retain a copy of the communication as part of the audit
documentation.2 (Ref: Para. A54)
***
Application and Other Explanatory Material
Those Charged with Governance (Ref: Para. 11)
A1. Governance structures vary by entities, reflecting influences such as
different cultural and legal backgrounds, and size and ownership characteristics.
For example:
 In some entities, a supervisory (wholly or mainly non-executive) board
exists that is legally separate from an executive (management) board (a
“two-tier board” structure). In other entities, both the supervisory and

2 SA 230, Audit Documentation, paragraphs 8–11, and A6.

7 SA 260(Revised)
executive functions are the legal responsibility of a single, or unitary, board
(a “one-tier board” structure).
 In some entities, those charged with governance hold positions that are an
integral part of the entity’s legal structure, for example, company directors.
In others, for example, some government entities, a body that is not part of
the entity is charged with governance.
 In some cases, some or all of those charged with governance are involved
in managing the entity. In others, those charged with governance and
management comprise different persons.
 In some cases, those charged with governance are responsible for
approving3 the entity’s financial statements (in other cases management
has this responsibility).
A2. In most entities, governance is the collective responsibility of a governing
body, such as a board of directors, a supervisory board, partners, proprietors, a
committee of management, a council of governors, trustees, or equivalent
persons. In some smaller entities, however, one person may be charged with
governance, for example, the owner-manager where there are no other owners,
or a sole trustee. When governance is a collective responsibility, a subgroup
such as an audit committee or even an individual, may be charged with specific
tasks to assist the governing body in meeting its responsibilities. Alternatively, a
subgroup or individual may have specific, legally identified responsibilities that
differ from those of the governing body.
A3. Such diversity means that it is not possible for this SA to specify for all
audits the person(s) with whom the auditor is to communicate particular matters.
Also, in some cases, the appropriate person(s) with whom to communicate may
not be clearly identifiable from the applicable legal framework or other
engagement circumstances, for example, entities where the governance
structure is not formally defined, such as some family-owned entities, some not-
for-profit organizations, and some government entities. In such cases, the auditor
may need to discuss and agree with the engaging party the relevant person(s)
with whom to communicate. In deciding with whom to communicate, the auditor’s
understanding of an entity’s governance structure and processes obtained in
accordance with SA 3154 is relevant. The appropriate person(s) with whom to
communicate may vary depending on the matter to be communicated.

3 As described in paragraph A60 of SA 700 (Revised), Forming an Opinion and Reporting on

Financial Statements, having responsibility for approving in this context means having the authority
to conclude that all the statements that comprise the financial statements, including the related
notes, have been prepared.
4 SA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the

Entity and Its Environment.

SA 260(Revised) 8
A4. SA 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.
Communication with a Subgroup of Those Charged with Governance (Ref:
Para. 12)
A5. When considering communicating with a subgroup of those charged with
governance, the auditor may take into account such matters as:
 The respective responsibilities of the subgroup and the governing body.
 The nature of the matter to be communicated.
 Relevant legal or regulatory requirements.
 Whether the subgroup has the authority to take action in relation to the
information communicated, and can provide further information and
explanations the auditor may need.
A6. When deciding whether there is also a need to communicate information,
in full or in summary form, with the governing body, the auditor may be
influenced by the auditor’s assessment of how effectively and appropriately the
subgroup communicates relevant information with the governing body. The
auditor may make explicit in agreeing the terms of engagement that, unless
prohibited by law or regulation, the auditor retains the right to communicate
directly with the governing body.
A7. Audit committees (or similar subgroups with different names) exist in many
entities. Although their specific authority and functions may differ, communication
with the audit committee, where one exists, has become a key element in the
auditor’s communication with those charged with governance. Good governance
principles suggest that:
 The auditor will be invited to regularly attend meetings of the audit
committee.
 The chair of the audit committee and, when relevant, the other members of
the audit committee, will liaise with the auditor periodically.

9 SA 260(Revised)
 The audit committee will meet the auditor without management present at
least annually.
When All of Those Charged with Governance Are Involved in Managing the
Entity (Ref: Para.13)
A8. In some cases, all of those charged with governance are involved in
managing the entity, and the application of communication requirements is
modified to recognize this position. In such cases, communication with person(s)
with management responsibilities may not adequately inform all of those with
whom the auditor would otherwise communicate in their governance capacity.
For example, in a company where all directors are involved in managing the
entity, some of those directors (e.g., one responsible for marketing) may be
unaware of significant matters discussed with another director (e.g., one
responsible for the preparation of the financial statements).
Matters to Be Communicated
The Auditor’s Responsibilities in Relation to the Financial Statement Audit
(Ref: Para. 14)
A9. 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.5 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:
 The auditor’s responsibility for performing the audit in accordance with SAs,
which is directed towards the expression of an opinion on the financial
statements. The matters that SAs 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 SAs do not require the auditor to design procedures for the
purpose of identifying supplementary matters to communicate with those
charged with governance.
 When SA 7016 applies, the auditor’s responsibilities to determine and
communicate key audit matters in the auditor’s report.

5 See paragraph 10 of SA 210, Agreeing the Terms of Audit Engagements.
6 SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.

SA 260(Revised) 10
 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.
A10. 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.
Planned Scope and Timing of the Audit (Ref: Para. 15)
A11. Communication regarding the planned scope and timing of the audit may:
 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
 Assist the auditor to understand better the entity and its environment.
A12. Communicating significant risks identified by the auditor helps those
charged with governance understand those matters and why they require special
audit consideration. The communication about significant risks may assist those
charged with governance in fulfilling their responsibility to oversee the financial
reporting process.
A13. Matters communicated may include:
(a) How the auditor plans to address the significant risks of material
misstatement, whether due to fraud or error.
(b) How the auditor plans to address areas of higher assessed risks of material
misstatement.
(c) The auditor’s approach to internal control relevant to the audit.
(d) The application of the concept of materiality in the context of an audit.7
(e) 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.8

7 SA 320, Materiality in Planning and Performing an Audit.
8 See SA 620, ‘Using the Work of an Auditor’s Expert’.

11 SA 260(Revised)
(f) When SA 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.
A14. Other planning matters that it may be appropriate to discuss with those
charged with governance include:
 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.9
 The views of those charged with governance of:
o The appropriate person(s) in the entity’s governance structure with
whom to communicate.
o The allocation of responsibilities between those charged with
governance and management.
o The entity’s objectives and strategies, and the related business risks
that may result in material misstatements.
o Matters those charged with governance consider warrant particular
attention during the audit, and any areas where they request
additional procedures to be undertaken.
o Significant communications with regulators.
o 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.
 The responses of those charged with governance to previous
communications with the auditor.
 The documents comprising the other information (as defined in SA 720
(Revised)) and the planned manner and timing of the issuance of such
documents. When the auditor expects to obtain other information after the

9 SA 610 (Revised), ‘Using the Work of Internal Auditors’, paragraph 31.

SA 260(Revised) 12
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.
A15. 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.
A16. 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.
Significant Findings from the Audit (Ref: Para. 16)
A17. 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.
A18. When SA 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.10
Significant Qualitative Aspects of Accounting Practices (Ref: Para. 16(a))
A19. 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 key assumptions in
the development of accounting estimates for which there is significant
measurement uncertainty. 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

10 SA 701, paragraphs 9–10.

13 SA 260(Revised)
to users about the most difficult, subjective or complex judgments made by
management in preparing the financial statements.
A20. 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 evaluation of the
adequacy of disclosures of the estimation uncertainty relating to accounting
estimates that give rise to significant risks. 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. Appendix 2 identifies matters that may be included in this
communication.
Significant Difficulties Encountered during the Audit (Ref: Para. 16(b))
A21. Significant difficulties encountered during the audit may include such
matters as:
(i) 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.
(ii) An unreasonably brief time within which to complete the audit.
(iii) Extensive unexpected effort required to obtain sufficient appropriate audit
evidence.
(iv) The unavailability of expected information.
(v) Restrictions imposed on the auditor by management.
(vi) 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.11
Significant Matters Discussed, or Subject to Correspondence with Management
(Ref: Para. 16(c)(i))
A22. Significant matters discussed, or subject to correspondence with
management may include such matters as:
 Significant events or transactions that occurred during the year.

11 SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report.

SA 260(Revised) 14
 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 that Affect the Form and Content of the Auditor’s Report (Ref:
Para 16(d))
A23. SA 210 requires the auditor to agree the terms of the audit engagement
with management or those charged with governance, as appropriate.12 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.13 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.
A24. 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 SAs, and for which communication with those charged with governance
is required, include when:
 The auditor expects to modify the opinion in the auditor’s report in
accordance with SA 705 (Revised).14
 A material uncertainty related to going concern is reported in accordance
with SA 570 (Revised).15

12 SA 210, paragraph 9.
13 SA 210, paragraph 10.
14 SA 705 (Revised), paragraph 30.
15 SA 570 (Revised), ‘Going Concern’, paragraph 25(d).

15 SA 260(Revised)
 Key audit matters are communicated in accordance with SA 701.16
 The auditor considers it necessary to include an Emphasis of Matter
paragraph or Other Matter paragraph in accordance with SA 706
(Revised)17 or is required to do so by other SAs.
 The auditor has concluded that there is an uncorrected material
misstatement of the other information in accordance with SA
720(Revised).18
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.
A25. 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 SA 700
(Revised), 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 SA 700 (Revised).19
Other Significant Matters Relevant to the Financial Reporting Process (Ref: Para.
16(e))
A26. SA 30020 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.
A27. 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.

16 SA 701, paragraph 17.
17 SA 706 (Revised), ‘Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report’, paragraph 12.
18 SA 720 (Revised), ‘The Auditor’s Responsibilities Relating to Other Information’, paragraph 18(a).
19 SA 700 (Revised), paragraph 41.
20 SA 300, ‘Planning an Audit of Financial Statements’, paragraph A14.

SA 260(Revised) 16
A28. 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 control reviewer, if one has been appointed, in accordance
with SA 220.21
Auditor Independence (Ref: Para. 17)
A29. The auditor is required to comply with relevant ethical requirements,
including those pertaining to independence, relating to financial statement audit
engagements.22
A30. The relationships and other matters, and safeguards to be communicated,
vary with the circumstances of the engagement, but generally address:
(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 safeguards within the firm’s own systems and
procedures.
A31. 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 Code of Ethics issued by ICAI 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.
A32. 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 large 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.

21 See paragraphs 19–21 and A23–A32 of SA 220, Quality Control for an Audit of Financial

Statements.
22 SA 200, paragraph 14.

17 SA 260(Revised)
Supplementary Matters (Ref: Para. 3)
A33. 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.
A34. 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.
A35. 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.
A36. If a supplementary matter is communicated, it may be appropriate for the
auditor to make those charged with governance aware that:
(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.
The Communication Process
Establishing the Communication Process (Ref: Para. 18)
A37. Clear communication of the auditor’s responsibilities, the planned scope
and timing of the audit, and the expected general content of communications
helps establish the basis for effective two-way communication.
A38. Matters that may also contribute to effective two-way communication
include discussion of:
 The purpose of communications. When the purpose is clear, the auditor
and those charged with governance are better placed to have a mutual
understanding of relevant issues and the expected actions arising from the
communication process.

SA 260(Revised) 18
 The form in which communications will be made.
 The person(s) in the engagement team and among those charged with
governance who will communicate regarding particular matters.
 The auditor’s expectation that communication will be two-way, and that
those charged with governance will communicate with the auditor matters
they consider relevant to the audit, for example, strategic decisions that
may significantly affect the nature, timing and extent of audit procedures,
the suspicion or the detection of fraud, and concerns with the integrity or
competence of senior management.
 The process for taking action and reporting back on matters communicated
by the auditor.
 The process for taking action and reporting back on matters communicated
by those charged with governance.
A39. The communication process will vary with the circumstances, including the
size and governance structure of the entity, how those charged with governance
operate, and the auditor’s view of the significance of matters to be
communicated. Difficulty in establishing effective two-way communication may
indicate that the communication between the auditor and those charged with
governance is not adequate for the purpose of the audit (see paragraph A52).
Considerations Specific to Smaller Entities
A40. In the case of audits of smaller entities, the auditor may communicate in a
less structured manner with those charged with governance than in the case of
listed or larger entities.
Communication with Management
A41. Many matters may be discussed with management in the ordinary course
of an audit, including matters required by this SA to be communicated with those
charged with governance. Such discussions recognize management’s executive
responsibility for the conduct of the entity’s operations and, in particular,
management’s responsibility for the preparation of the financial statements.
A42. Before communicating matters with those charged with governance, the
auditor may discuss them with management, unless that is inappropriate. For
example, it may not be appropriate to discuss questions of management’s
competence or integrity with management. In addition to recognizing
management’s executive responsibility, these initial discussions may clarify facts
and issues, and give management an opportunity to provide further information
and explanations. Similarly, when the entity has an internal audit function, the

19 SA 260(Revised)
auditor may discuss matters with the internal auditor before communicating with
those charged with governance.
Communication with Third Parties
A43. Those charged with governance may be required by law or regulation, or
may wish, to provide third parties, for example, bankers or certain regulatory
authorities, with copies of a written communication from the auditor. In some
cases, disclosure to third parties may be illegal or otherwise inappropriate. When
a written communication prepared for those charged with governance is provided
to third parties, it may be important in the circumstances that the third parties be
informed that the communication was not prepared with them in mind, for
example, by stating in written communications with those charged with
governance:
 That the communication has been prepared for the sole use of those
charged with governance and, where applicable, the group management
and the group auditor, and should not be relied upon by third parties;
 That no responsibility is assumed by the auditor to third parties; and
 Any restrictions on disclosure or distribution to third parties.
A44. In some entities, the auditor may be required by law or regulation to, for
example:
 Notify a regulatory or enforcement body of certain matters communicated
with those charged with governance. For example, in some countries the
auditor has a duty to report misstatements to authorities where
management and those charged with governance fail to take corrective
action;
 Submit copies of certain reports prepared for those charged with
governance to relevant regulatory or funding bodies, or other bodies such
as a central authority in the case of some public sector entities; or
 Make reports prepared for those charged with governance publicly
available.
A45. Unless required by law or regulation to provide a third party with a copy of
the auditor’s written communications with those charged with governance, the
auditor may need the prior consent of those charged with governance before
doing so.
Forms of Communication (Ref: Para. 19)
A46. Effective communication may involve structured presentations and written
reports as well as less structured communications, including discussions. The

SA 260(Revised) 20
auditor may communicate matters other than those identified in paragraphs 19–
20 either orally or in writing. Written communications may include an
engagement letter that is provided to those charged with governance.
A47. In addition to the significance of a particular matter, the form of
communication (e.g., whether to communicate orally or in writing, the extent of
detail or summarization in the communication, and whether to communicate in a
structured or unstructured manner) may be affected by such factors as:
(a) Whether a discussion of the matter will be included in the auditor’s report.
For example, when key audit matters are communicated in the auditor’s
report, the auditor may consider it necessary to communicate in writing
about the matters determined to be key audit matters.
(b) Whether the matter has been satisfactorily resolved.
(c) Whether management has previously communicated the matter.
(d) The size, operating structure, control environment, and legal structure of
the entity.
(e) In the case of an audit of special purpose financial statements, whether the
auditor also audits the entity’s general purpose financial statements.
(f) Legal requirements. In some entities, a written communication with those
charged with governance is required in a prescribed form by local law.
(g) The expectations of those charged with governance, including
arrangements made for periodic meetings or communications with the
auditor.
(h) The amount of ongoing contact and dialogue the auditor has with those
charged with governance.
(i) Whether there have been significant changes in the membership of a
governing body.
A48. When a significant matter is discussed with an individual member of those
charged with governance, for example, the chair of an audit committee, it may be
appropriate for the auditor to summarize the matter in later communications so
that all of those charged with governance have full and balanced information.
Timing of Communications (Ref: Para. 21)
A49. Timely communication throughout the audit contributes to the achievement
of robust two-way dialogue between those charged with governance and the
auditor. However, the appropriate timing for communications will vary with the
circumstances of the engagement. Relevant circumstances include the

21 SA 260(Revised)
significance and nature of the matter, and the action expected to be taken by
those charged with governance. For example:
(a) Communications regarding planning matters may often be made early in
the audit engagement and, for an initial engagement, may be made as part
of agreeing the terms of the engagement.
(b) It may be appropriate to communicate a significant difficulty encountered
during the audit as soon as practicable if those charged with governance
are able to assist the auditor to overcome the difficulty, or if it is likely to
lead to a modified opinion. Similarly, the auditor may communicate orally to
those charged with governance as soon as practicable significant
deficiencies in internal control that the auditor has identified, prior to
communicating these in writing as required by SA 265.23
 When SA 701 applies, the auditor may communicate preliminary
views about key audit matters when discussing the planned scope
and timing of the audit (see paragraph A13), and the auditor also may
have more frequent communications to further discuss such matters
when communicating about significant audit findings.
 Communications regarding independence may be appropriate
whenever significant judgments are made about threats to
independence and related safeguards, for example, when accepting
an engagement to provide non-audit services, and at a concluding
discussion.
 Communications regarding findings from the audit, including the
auditor’s views about the qualitative aspects of the entity’s accounting
practices, may also be made as part of the concluding discussion.
 When auditing both general purpose and special purpose financial
statements, it may be appropriate to coordinate the timing of
communications.
A50. Other factors that may be relevant to the timing of communications include:
 The size, operating structure, control environment, and legal structure of
the entity being audited.
 Any legal obligation to communicate certain matters within a specified
timeframe.
 The expectations of those charged with governance, including

23 SA 265, paragraphs 9 and A14.

SA 260(Revised) 22
arrangements made for periodic meetings or communications with the
auditor.
 The time at which the auditor identifies certain matters, for example, the
auditor may not identify a particular matter (e.g., noncompliance with a law)
in time for preventive action to be taken, but communication of the matter
may enable remedial action to be taken.
Adequacy of the Communication Process (Ref: Para. 22)
A51. The auditor need not design specific procedures to support the evaluation
of the two-way communication between the auditor and those charged with
governance; rather, that evaluation may be based on observations resulting from
audit procedures performed for other purposes. Such observations may include:
 The appropriateness and timeliness of actions taken by those charged with
governance in response to matters raised by the auditor. Where significant
matters raised in previous communications have not been dealt with
effectively, it may be appropriate for the auditor to inquire as to why
appropriate action has not been taken, and to consider raising the point
again. This avoids the risk of giving an impression that the auditor is
satisfied that the matter has been adequately addressed or is no longer
significant.
 The apparent openness of those charged with governance in their
communications with the auditor.
 The willingness and capacity of those charged with governance to meet
with the auditor without management present.
 The apparent ability of those charged with governance to fully comprehend
matters raised by the auditor, for example, the extent to which those
charged with governance probe issues, and question recommendations
made to them.
 Difficulty in establishing with those charged with governance a mutual
understanding of the form, timing and expected general content of
communications.
 Where all or some of those charged with governance are involved in
managing the entity, their apparent awareness of how matters discussed
with the auditor affect their broader governance responsibilities, as well as
their management responsibilities.
 Whether the two-way communication between the auditor and those
charged with governance meets applicable legal and regulatory
requirements.

23 SA 260(Revised)
A52. As noted in paragraph 4, effective two-way communication assists both
the auditor and those charged with governance. Further, SA 315 identifies
participation by those charged with governance, including their interaction with
internal audit, if any, and external auditors, as an element of the entity’s control
environment.24 Inadequate two-way communication may indicate an
unsatisfactory control environment and influence the auditor’s assessment of the
risks of material misstatements. There is also a risk that the auditor may not have
obtained sufficient appropriate audit evidence to form an opinion on the financial
statements.
A53. If the two-way communication between the auditor and those charged with
governance is not adequate and the situation cannot be resolved, the auditor
may take such actions as:
 Modifying the auditor’s opinion on the basis of a scope limitation.
 Obtaining legal advice about the consequences of different courses of
action.
 Communicating with third parties (e.g., a regulator), or a higher authority in
the governance structure that is outside the entity, such as the owners of a
business (e.g., shareholders in a general meeting), or the responsible
government minister or parliament in the public sector.
 Withdrawing from the engagement, where withdrawal is possible under
applicable law or regulation.
Documentation (Ref: Para. 23)
A54. Documentation of oral communication may include a copy of minutes
prepared by the entity retained as part of the audit documentation where those
minutes are an appropriate record of the communication.

24 SA 315, paragraph A76.

SA 260(Revised) 24
Appendix 1
(Ref: Para. 3)
Specific Requirements in SQC 1 and Other SAs that Refer
to Communications with Those Charged with Governance
This appendix identifies paragraphs in SQC 125 and other SAs that require
communication of specific matters with those charged with governance. The list
is not a substitute for considering the requirements and related application and
other explanatory material in SAs.
 SQC 1, Quality Control for Firms that Perform Audits and Reviews of
Historical Financial Information, and Other Assurance and Related Services
Engagements – paragraph 42(a).
 SA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of
Financial Statements – paragraphs 21, 38(c)(i) and 40-42.
 SA 250, Consideration of Laws and Regulations in an Audit of Financial
Statements – paragraphs 14, 19 and 22–24.
 SA 265, Communicating Deficiencies in Internal Control to Those Charged
with Governance and Management – paragraph 9.
 SA 450, Evaluation of Misstatements Identified during the Audit –
paragraphs 12-13.
 SA 505, External Confirmations – paragraph 9.
 SA 510, Initial Audit Engagements―Opening Balances – paragraph 7.
 SA 550, Related Parties – paragraph 27.
 SA 560, Subsequent Events– paragraphs 7(b)-(c), 10(a), 13(b), 14(a) and
17.
 SA 570 (Revised), Going Concern – paragraph 25.
 SA 610 (Revised), Using the Work of Internal Auditors – paragraphs 20 and
31.
 SA 701, Communicating Key Audit Matters in the Independent Auditor’s
Report – paragraph 17.

25 SQC 1, Quality Control for Firms that Perform Audits and Reviews of Historical Financial
Information, and Other Assurance and Related Services Engagements.

25 SA 260(Revised)
 SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s
Report – paragraphs 12, 14, 23 and 30.
 SA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report – paragraph 12.
 SA 710, Comparative Information—Corresponding Figures and
Comparative Financial Statements - paragraph 18.
 SA 720(Revised), “The Auditor’s Responsibilities Relating to Other
Information”– paragraph 17–19.

SA 260(Revised) 26
Appendix 2
(Ref: Para. 16(a), A19–A20)
Qualitative Aspects of Accounting Practices
The communication required by paragraph 16(a), and discussed in paragraphs
A19–A20, may include such matters as:
Accounting Policies
 The appropriateness of the accounting policies to the particular
circumstances of the entity, having regard to the need to balance the cost
of providing information with the likely benefit to users of the entity’s
financial statements. Where acceptable alternative accounting policies
exist, the communication may include identification of the financial
statement items that are affected by the choice of significant accounting
policies as well as information on accounting policies used by similar
entities.
 The initial selection of, and changes in, significant accounting policies,
including the application of new accounting pronouncements. The
communication may include: the effect of the timing and method of
adoption of a change in accounting policy on the current and future
earnings of the entity; and the timing of a change in accounting policies in
relation to expected new accounting pronouncements.
 The effect of significant accounting policies in controversial or emerging
areas (or those unique to an industry, particularly when there is a lack of
authoritative guidance or consensus).
 The effect of the timing of transactions in relation to the period in which they
are recorded.
Accounting Estimates
 For items for which estimates are significant, issues discussed in SA 540,26
including, for example:
o How management identifies those transactions, events and conditions
that may give rise to the need for accounting estimates to be
recognized or disclosed in the financial statements.
o Changes in circumstances that may give rise to new, or the need to
revise existing, accounting estimates.

26 SA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related

Disclosures.

27 SA 260(Revised)
o Whether management’s decision to recognize, or to not recognize, the
accounting estimates in the financial statements is in accordance with
the applicable financial reporting framework.
o Whether there has been or ought to have been a change from the
prior period in the methods for making the accounting estimates and,
if so, why, as well as the outcome of accounting estimates in prior
periods.
o Management’s process for making accounting estimates (e.g., when
management has used a model), including whether the selected
measurement basis for the accounting estimate is in accordance with
the applicable financial reporting framework.
o Whether the significant assumptions used by management in
developing the accounting estimate are reasonable.
 Where relevant to the reasonableness of the significant assumptions used
by management or the appropriate application of the applicable financial
reporting framework, management’s intent to carry out specific courses of
action and its ability to do so.
o Risks of material misstatement.
o Indicators of possible management bias.
o How management has considered alternative assumptions or
outcomes and why it has rejected them, or how management has
otherwise addressed estimation uncertainty in making the accounting
estimate.
o The adequacy of disclosure of estimation uncertainty in the financial
statements.
Financial Statement Disclosures
 The issues involved, and related judgments made, in formulating
particularly sensitive financial statement disclosures (e.g., disclosures
related to revenue recognition, remuneration, going concern, subsequent
events, and contingency issues).
 The overall neutrality, consistency and clarity of the disclosures in the
financial statements.
Related Matters
 The potential effect on the financial statements of significant risks,
exposures and uncertainties, such as pending litigation, that are disclosed
in the financial statements.

SA 260(Revised) 28
 The extent to which the financial statements are affected by significant
transactions that are outside the normal course of business for the entity, or
that otherwise appear to be unusual. This communication may highlight:
o The non-recurring amounts recognized during the period.
o The extent to which such transactions are separately disclosed in the
financial statements.
o Whether such transactions appear to have been designed to achieve
a particular accounting or tax treatment, or a particular legal or
regulatory objective.
o Whether the form of such transactions appears overly complex or
where extensive advice regarding the structuring of the transaction
has been taken.
o Where management is placing more emphasis on the need for a
particular accounting treatment than on the underlying economics of
the transaction.
 The factors affecting asset and liability carrying values, including the entity’s
bases for determining useful lives assigned to tangible and intangible
assets. The communication may explain how factors affecting carrying
values were selected and how alternative selections would have affected
the financial statements.
 The selective correction of misstatements, for example, correcting
misstatements with the effect of increasing reported earnings, but not those
that have the effect of decreasing reported earnings.

29 SA 260(Revised)