Communication with those Charged with Governance (TCWG) by Phyllis Willoughby
Communication with those Charged with Governance (TCWG)
by Phyllis Willoughby
Communication with those charged with governance is a vital aspect of the audit process. Statutory auditors are required per ISA (Ireland) 260 to communicate audit matters to those charged with governance, hence it is equally imperative that those charged with governance have an understanding of all significant issues that have arisen from the audit process. This article therefore aims to convey the importance of effective two-way communications in the audit of financial statements.
Who are those charged with Governance (TCWG)?
It is essential that the statutory auditor identifies the appropriate persons within the entity’s structure that they should communicate with. In Ireland, those charged with governance include:

  • Executive and non-executive directors
  • Members of an audit committee where on exists
  • For other types of entity, it usually includes equivalent persons such as the partners, proprietors, committee of management or trustees
  • For smaller entities this is usually the owner-manager where there are no other owners
Matters the statutory auditor needs to communicate with TCWG
The statutory auditor has many matters to communicate, including their responsibilities in relation to the financial statement audit, the planned scope and timing of the audit including significant findings from the audit. The statutory auditor communicates the following matters to those charged with governance:

  • The forming and expressing of the audit opinion on the financial statements that have been prepared by management with oversight of those charged with governance.
  • The planned scope and timing of the audit.
  • The significant findings from the audit.
Forms of Communication between TCWG and the Statutory Auditor
Communications can be verbal, virtual or written. For example, verbal communications should be followed up with a summary of that verbal communication such as a copy of the minutes of the meeting, a memo on file, recording virtual meetings for example via zoom or Microsoft teams. Written forms of communication include letters, emails, memos etc.
Timing of Communications between TCWG and the Statutory Auditor
The statutory auditor shall communicate with TCWG on a timely basis. However, the appropriate timing for communications will vary for each audit client. The significance and nature of matters raised, and action expected to be taken by TCWG include:

  • Planning matters are often communicated early to TCWG in the audit engagement.
  • It may be appropriate to communicate a significant difficulty encountered during the audit as soon as practicable to TCWG who are then able to assist the statutory auditor in overcoming the difficulty.
  • 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.
  • 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.
Adequacy of the Communication Process
The statutory auditor shall evaluate whether the two-way communication between them and TCWG has been adequate for audit purposes. Evaluations and observations made by the statutory auditor include:

  • The appropriateness and timeliness of actions taken by those charged with governance in response to matters raised by the statutory auditor.
  • The apparent openness of TCWG in their communications.
  • The apparent ability of TCWG to fully comprehend matters raised during the audit process.
  • Difficulties in establishing with TCWG a mutual understanding of the form, timing and expected general content of communications.
  • Where TCWG are involved in managing the entity, their apparent awareness of how matters discussed with the statutory auditor affect their broader governance and management responsibilities.
  • Whether the two-way communications meet applicable legal and regulatory requirements.
Types of issues that the statutory auditor needs to communicate with TCWG
The statutory auditor should consider types of issues that should be communicated to TCWG, these include:

  • Any changes in accounting policies that materially affect the financial statements.
  • Material events or uncertainties which impact going concern and require disclosure in the financial statements.
  • Material weaknesses discovered in the internal systems and controls.
  • Any expected audit report modifications.
  • Adjustments arising as a result of audit procedures which could materially impact the financial statements.
  • How the statutory auditor plans to address significant risks of material misstatement, whether due to fraud or error.
  • 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.
  • Details of any threats to independence and objectivity, including safeguards applied.
  • Recommendations, where relevant, to help improve the entity’s internal systems and controls.

Top ten practical steps the statutory auditor can implement to strengthen compliance with ISA (Ireland) 260 when carrying out statutory audits.

Step 1
Determine whom exactly TCWG are.
Step 2
Ensure that the purpose of all communication is clear, this strengthens the mutual understanding of relevant issues and the expected actions arising from the communication process.
Step 3
Encourage TCWG to communicate matters they consider relevant to the audit, these could include:

  • Strategic decisions made that significantly affect the nature, timing and extent of audit procedures.
  • The suspicion or detection of fraud.
  • Concerns with integrity or competence of senior management.
Step 4
Determine how to document various forms of communication, for example:

  • Written communications such as letters of engagement, audit planning letters, audit findings letters, minutes of meetings, memo’s placed on audit file etc.
  • Verbal communications supported by minutes of meetings held.
  • Virtual communications supported by recordings of virtual zoom and/or Microsoft teams meetings.
Step 5
Statutory Auditor independence and objectivity should be maintained while developing constructive working relationships with TCWG.
Step 6
The Statutory Auditor should seek legal advice in certain matters where law or regulation may specifically prohibit a communication or action that might prejudice an investigation by an appropriate authority into an actual, or suspected illegal act including alerting the entity, for example when the statutory auditor is required to report identified or suspected non-compliance with laws and regulations to an appropriate authority pursuant to anti money laundering legislation.
Step 7
Ensure all non-audit services are communicated to TCWG, this is normally done via the audit planning letter.
Step 8
Ensure communications with TCWG accurately reflects the work performed and evidenced on the audit file.
Step 9
Ensure communications with TCWG is consistent with the documentation on the audit file.
Step 10
Clearly communicate fraud risk identified as a significant risk.
Timely communication throughout the audit contributes to the achievement of a robust two-way dialogue between TCWG and the statutory auditor, thus providing ample time for TCWG to respond to significant matters raised by the statutory auditor.

As discussed within this article there are various forms of communication, verbal, written, virtual etc., CPA Ireland have sample letters that will assist with communications with TCWG, these include:

  • Audit engagement letters
  • Audit planning letters
  • Audit finding letters

These forms of communication can be found here.

IAASA published its key messages for auditors in the area of communication with TCWG, the link can be found here.

Phyllis Willoughby
Phyllis Willoughby
Learning & Development Accountant Member Services, CPA Ireland