This Auditing Standard deals with the auditor’s responsibility to communicate with those charged with governance in an audit of a financial report.  Although this Auditing Standard 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 Auditing Standard 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.

This Auditing Standard is written in the context of an audit of the financial report, but may also be applicable, 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.

Recognising the importance of effective two‑way communication in an audit of a financial report, this Auditing Standard 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 Auditing Standard, are identified in other Australian Auditing Standards (see Appendix 1 of this Auditing Standard).  In addition, ASA 265[1] 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 Australian Auditing Standards, may be required to be communicated by law or regulation, by agreement with the entity, or by additional requirements applicable to the engagement.  Nothing in this Auditing Standard precludes the auditor from communicating any other matters to those charged with governance.  (Ref: Para. A33–A36)

This Auditing Standard focuses primarily on communications from the auditor to those charged with governance.  Nevertheless, effective two‑way communication is important in assisting:

1. The auditor and those charged with governance in understanding matters related to the audit in context, and in developing a constructive working relationship.  This relationship is developed while maintaining the auditor’s independence and objectivity;
2. 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
3. Those charged with governance in fulfilling their responsibility to oversee the financial reporting process, thereby reducing the risks of material misstatement of the financial report.

Although the auditor is responsible for communicating matters required by this Auditing Standard, 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. 

Clear communication of specific matters required to be communicated by Australian Auditing Standards is an integral part of every audit.  Australian Auditing Standards do not, however, require the auditor to perform procedures specifically to identify any other matters to communicate with those charged with governance. 

In some jurisdictions, law or regulation may restrict the auditor’s communication of certain matters with those charged with governance.  Law or regulation may specifically prohibit a communication, or other 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 auditor is required to report identified or suspected non-compliance with laws or regulations to an appropriate authority pursuant to anti-money laundering legislation.  In these circumstances, the issues considered by the auditor may be complex and the auditor may consider it appropriate to obtain legal advice.

[Deleted by the AUASB.  Refer Aus 0.3]