Introduction
In today’s corporate environment, transparency and accountability are essential for reliable financial reporting. SA 260 focuses on effective communication between the auditor and Those Charged with Governance (TCWG) to ensure clarity regarding audit responsibilities, scope, significant findings, and critical matters affecting the financial statements.
In other words, this Standard strengthens the relationship between the auditor and governance bodies such as the Board of Directors or the Audit Committee.
SA 260 requires the auditor to communicate effectively with TCWG. Specifically, the auditor must:
- Explain his responsibilities
- Share the planned scope and timing of the audit
- Communicate significant findings
- Promote two-way communication
Although the Standard remains applicable in 2026 without major structural amendments, regulators now expect stronger documentation and clearer communication—particularly regarding going concern and key audit matters.
Objectives of SA 260
Primarily, SA 260 aims to ensure that TCWG clearly understand:
- The auditor’s role
- The audit approach
- Significant matters arising during the audit
Consequently, this reduces misunderstandings and enhances corporate governance.
What the Auditor Must Communicate
1. Auditor’s Responsibilities
First and foremost, the auditor must clearly state that:
- He conducts the audit in accordance with Standards on Auditing.
- His objective is to express an opinion on the financial statements.
- Management is responsible for the preparation of financial statements and internal controls.
Thus, this communication prevents confusion regarding roles and responsibilities.
2. Planned Scope and Timing of the Audit
Furthermore, the auditor should discuss:
- Overall audit strategy
- Significant risk areas
- Nature and extent of audit procedures
- Use of experts or internal auditors
- Expected audit timeline
As a result, TCWG gain clarity about how and when the audit will be conducted.
3. Significant Findings from the Audit
Most importantly, the auditor must communicate key matters identified during the audit. These include:
- Selection or changes in significant accounting policies
- Significant risks and exposures (for example, pending litigation)
- Material audit adjustments (both corrected and uncorrected)
- Material uncertainties related to going concern
- Disagreements with management
- Expected modifications to the auditor’s report (qualified, adverse, disclaimer, etc.)
Importantly, early communication helps avoid surprises at the reporting stage.
4. Timeliness of Communication
Equally important, communication should occur on a timely basis—not merely at the end of the audit.
Therefore, TCWG can take corrective actions promptly where necessary.
5. Form of Communication
Communication may be:
- Written (preferred for significant matters), or
- Oral
However, if communication is oral, the auditor must document:
- Matters discussed
- Date and participants
- Responses received
Hence, proper documentation is mandatory and increasingly emphasized by regulators.
Two-Way Communication
In addition, SA 260 promotes active dialogue. The auditor should encourage discussion and obtain feedback from TCWG.
Ultimately, effective two-way communication improves audit quality and strengthens governance oversight.
Conclusion
To summarize, SA 260 ensures transparency between the auditor and Those Charged with Governance.
The auditor must clearly communicate:
- Responsibilities
- Scope and timing
- Significant findings
- Risks, disagreements, and potential report modifications
In conclusion, clear, timely, and well-documented communication not only enhances audit quality but also strengthens corporate governance and stakeholder confidence.