Communication with TCWG / Audit Committee — SA 260 Template
Following is example of a letter to the audit committee.
Date:
To
The Chairman
Audit Committee
XYZ Company Private Limited
Xxxxxx India
Dear Sir,
Sub: Auditor’s communication to those charged with governance as required by Standard on Auditing (SA) 260
We have been appointed as the Statutory Auditors of XYZ Private Limited (the company) to audit the Standalone and Consolidated Financial Statements of the company for the Financial Year ended on 31 March, 2xx3. The financial statements will comprise the Balance Sheet as at 31 March 2xx3, and the Statement of Profit and Loss, the Statement of Cash Flows for the year then ended, and a summary of the significant accounting policies and other explanatory information.
Our audit will be conducted with the objective of expressing an opinion if the aforesaid financial statements are prepared as per requirements of the Companies Act, 2013 and give the information required by applicable financial reporting standards, as well as other recognized accounting practices and policies in the manner so required, and give a true and fair view in conformity with the applicable accounting principles generally accepted in India, of the state of affairs of the company as at 31st March, 2xx3, its profit/loss and its cash flow for the year ended on that date. The audit work also includes issuance of the report on adequacy and operating effectiveness of internal financial controls with reference to financial statements and as part of the audit, verification and/or certification of certain specific aspects, as listed in the appointment letter.
Planned Scope of Audit
We will conduct our audit in accordance with the Standards on Auditing (SAs), specified under Section 143(10) of the Companies Act 2013 and also in accordance with any other applicable pronouncements of the ICAI, issued from time to time. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.
Because of the inherent limitations of an audit, including the possibility of collusion or improper management override of controls, there is an unavoidable risk that material misstatements due to fraud or error may occur and not be detected, even though the audit is properly planned and performed in accordance with the SAs.
Our audit will be conducted on the basis that the Management and those charged with governance (Audit Committee / Board) acknowledge and understand that they have the responsibility:
For the preparation of financial statements that give a true and fair view in accordance with the applicable Financial Reporting Standards and other generally accepted accounting principles in India. This includes:
Proper maintenance of accounts and other matters connected therewith;
The responsibility for the preparation of the financial statements on a going concern basis;
The preparation of the annual accounts in accordance with the applicable Financial Reporting Standards and providing proper explanation relating to any material departures from those Standards;
Selection of accounting policies and applying them consistently and making judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss and cash flows for that period;
Taking proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 and for preventing and detecting fraud and other irregularities;
Laying down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively;
Devising proper systems to ensure compliance with the provisions of all applicable laws and regulations including for those aspects which have been specifically listed for verification/ certification by us in your aforementioned letter and that such systems were adequate and operating effectively.
Identifying and informing us of all the pending litigations and confirming that the impact of the pending litigations on the financial position has been disclosed in its financial statements.
Identifying and informing us of financial transactions or matters that may have any adverse effect on the functioning of the company.
Informing us of facts that may affect the financial statements, of which Management may become aware during the period from the date of our report to the date the financial statements are issued.
To provide us, inter alia, with:
Access, at all times, to all information, including the books, accounts, vouchers and other records and documentation of the company, whether kept at the Head Office, branches, or elsewhere, of which the Management is aware that are relevant to the preparation of the financial statements such as records, documentation and other matters. This will include books of account maintained in electronic mode;
Access to reports, if any, relating to reporting on frauds and additional information that we may request from the Management for the purposes of our audit;
Unrestricted access to persons whom we deem it necessary to obtain audit evidence. This includes our entitlement to require from the officers of the company such information and explanations as we may think necessary for the performance of our duties as the auditors; and
All the required support to discharge our duties as the statutory auditors as stipulated under the standards on auditing.
As part of our audit process, we will request from the Management, Written Representation Letter as required under Standard on Auditing (SA) 580, “Written Representations” that they believe that they have fulfilled their responsibility for the preparation of the financial statements and for the completeness of the information provided to the auditor.
We will also communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also communicate with those charged with governance that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Planned Nature, Timing and extent of the Audit
The scope of our audit is consistent with the scope communicated in our engagement letter dated xxxxxxx 2xx3. The Work allocation and audit timeline is in line with the timeframe as suggested by management of the company.
Communication of Calculation of Audit Materiality and Basis of Sampling
The concept of materiality in planning and performing the audit of financial statements is followed in accordance with SA 320 “Materiality in Planning and performing an audit”.
Materiality level is calculated based on financials of the company as well as our audit experience of the industry in which the company operates. This is used to assess whether accumulated misstatements are material.
The materiality for audit has been set out at XX% of the Profit before tax of the company.
Significant issues identified so far, which arose in the previous Audit, Limited Reviews and audit discussions
We as part of our procedures share our audit observations with the management on completion of limited reviews and audit. As per requirement of SA 701 “Communicating Key Audit Matters in the Independent Auditor’s Report”, from the matters communicated with those charged with governance, we will determine those matters that were of most significance in the audit of the financial statements of the current period and will therefore be decided to be the Key Audit Matters (KAM). The standard further requires that the KAM are to be reported in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The KAM so identified shall be reported in the following tentative format:-
| S No | Key Audit Matter with description and reasoning for selection as Key Audit Matter | Audit Procedures Undertaken to address the Key Audit Matter |
|---|
| 1 | | |
| 2 | | |
Other Significant Matters or Issues
In the normal course of our professional association with the company, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating conditions affecting the entity, and operating plans and strategies that may affect the risks of material misstatement of financial statements.
This communication is intended solely for the information and use of the management of the company and is not intended to be and should not be used by anyone other than these specified parties.
Your Sincerely,
