Communications With Management and ThoseCommunications With Management and Those Charged With Governance

Communications With Management and Those Charged With Governance

99 If the auditor has identified a fraud or has obtained information that indicates that a fraud may exist, the auditor shall communicate these matters as soon as practicable to the appropriate level of management.

100 When, in accordance with paragraph 99 of this Auditing Standard, the auditor has obtained evidence that fraud exists or may exist, the auditor is required to bring the matter to the attention of the appropriate level of management as soon as practicable. This is so even if the matter might be considered inconsequential (for example, a minor defalcation by an employee at a low level in the entity’s organisation). The determination of which level of management is the appropriate one is a matter of professional judgement and is affected by such factors as the likelihood of collusion and the nature and magnitude of the suspected fraud. Ordinarily, the appropriate level of management is at least one level above the persons who appear to be involved with the suspected fraud.

101 If the auditor has identified fraud involving:

(a) management;

(b) employees who have significant roles in internal control; or

(c) others where the fraud results in a material misstatement in the financial report,

the auditor shall communicate these matters to those charged with governance as soon as practicable.

102 Legislation may require the auditor or a member of the audit team to maintain the confidentiality of information disclosed to the auditor by a person regarding contraventions or possible contraventions of the law.[3] In such circumstances, the auditor or a member of the audit team may be prevented from communicating that information to management or those charged with governance in order to protect the identity of the person who has disclosed confidential information that alleges a breach of the law. Consequently, the auditor may need to consider the implications for the audit engagement.

103 The auditor’s communication with those charged with governance may be made orally or in writing. ASA 260 identifies factors the auditor ordinarily considers in determining whether to communicate orally or in writing. Due to the nature and sensitivity of fraud involving senior management, or fraud that results in a material misstatement in the financial report, under paragraph 101 of this Auditing Standard and ASA 260 the auditor needs to report such matters as soon as practicable and ordinarily considers whether it is also necessary to report such matters in writing. If the auditor suspects fraud involving management, under paragraphs 99 and 101 of this Auditing Standard, the auditor needs to communicate these suspicions to those charged with governance and also ordinarily discusses with them the nature, timing and extent of audit procedures necessary to complete the audit.