Relevant PersonsRelevant Persons

Relevant Persons

9 The auditor shall determine the relevant persons who are charged with governance and with whom audit matters of governance interest are communicated.

10 The structures of governance vary according to the size and nature of an entity and from country to country reflecting different cultural and legal contextual backgrounds. In Australia, the governing board is responsible for the oversight function, but may establish an audit committee to assist it to fulfil its responsibilities, while senior executives are responsible for the management function. In other countries the oversight and management function may be legally separated into different bodies, such as a supervisory (wholly or mainly non-executive) board and a management (executive) board.

11 This diversity makes it difficult to establish a universal identification of the persons who are charged with governance and with whom the auditor communicates audit matters of governance interest. The auditor uses professional judgement to determine those persons with whom audit matters of governance interest are communicated, taking into account the governance structure of the entity, the circumstances of the engagement and any relevant legislation. The auditor also ordinarily considers the legal responsibilities of those persons. For example, in entities with audit committees, the relevant persons may be members of the audit committee. However, in entities where a unitary board has established an audit committee, the auditor may decide to communicate with the audit committee, or with the whole board, depending on the importance of the audit matters of governance interest.

12 When the entity’s governance structure is not well defined, or those charged with governance are not clearly identified by the circumstances of the engagement, or by legislation, the auditor ordinarily comes to an agreement with the entity about with whom audit matters of governance interest are to be communicated. Examples include some owner-managed entities, certain unincorporated associations, and some government agencies.

13 To avoid misunderstandings, an audit engagement letter may explain that the auditor will communicate only those matters of governance interest that come to the auditor’s attention as a result of the performance of an audit and that the auditor is not required to design audit procedures for the specific purpose of identifying matters of governance interest. The engagement letter may also:

(a) describe the form in which any communications on audit matters of governance interest will be made;

(b) identify the relevant persons with whom such communications will be made; and

(c) identify any specific audit matters of governance interest which it has been agreed are to be communicated.

14 The effectiveness of communications is enhanced by developing a constructive working relationship between the auditor and those charged with governance. This relationship is developed while maintaining an attitude of professional independence and objectivity.