Definition
Those charged with governance (TCWG) are the persons with responsibility for overseeing the entity's strategic direction, obligations related to accountability, and the financial reporting process. In a corporation this is usually the board or audit committee. In an owner-managed company it may be the same people as management, in which case AU-C 260 treats the communications as already made if the same individuals are fully informed.
Why it matters in an audit or review
AU-C 260 requires the auditor to communicate the auditor's responsibilities, the planned scope and timing, and significant findings. These include significant accounting policies and estimates, difficulties during the audit, disagreements with management, and the auditor's views on qualitative aspects of accounting practices. AU-C 265 adds significant deficiencies and material weaknesses, and AU-C 450 adds uncorrected misstatements.
Example
Illustrative: in the planning meeting the auditor tells the audit committee which areas are significant risks, explains that fraud inquiries will be made, and agrees when the committee will see the draft statements.
Common mistakes
Communicating only orally with no documentation, or sending reports to management and assuming the board saw them.
FAQ
Must communications be in writing?
Some must be, such as significant deficiencies and material weaknesses. Others can be oral, but the auditor documents them.
Sources
- AICPA, AU-C Section 260, The Auditor's Communication With Those Charged With Governance
- AICPA, AU-C Section 265, Communicating Internal Control Related Matters Identified in an Audit
- AICPA, AU-C Section 450, Evaluation of Misstatements Identified During the Audit
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error