AuditingandAssuranceStandardsCouncil

PhilippineStandardonAuditing260(RevisedandRedrafted)

COMMUNICATIONWITHTHOSECHARGEDWITHGOVER
NANCE
PHILIPPINESTANDARDONAUDITING260(REVISEDANDREDRAFTED)
COMMUNICATIONWITHTHOSECHARGEDWITHGOVERNANCE
(Effectiveforauditsoffinancialstatementsforperiodsbeginning onorafterDecember15,200
9)

CONTENTS
Paragrap
h
Introduction
ScopeofthisPSA.....................................................................................
......13EffectiveDate......................................................................................
...........4Objectives................................................................................
.......................5Definitions....................................................................
.................................6Requirements
ThoseChargedwithGovernance.............................................................
......79MatterstobeCommunicated.................................................................
........1013TheCommunicationProcess...............................................................
..........1418Documentation.................................................................................

.............19
ApplicationandOtherExplanatoryMaterial
TheRoleofCommunication.....................................................................
....A1A4ThoseChargedwithGovernance.........................................................
.........A5A12MatterstobeCommunicated............................................................
............A13A31TheCommunicationProcess.............................................................
...........A33A48Documentation...............................................................................
...............A49
Acknowledgment
Appendix1:SpecificRequirementsin[Proposed]PSQC1(Redrafted)
AndOtherPSAsthatRefertoCommunicationswith
ThosechargedwithGovernance
Appendix2:QualitativeAspectsofAccountingPractices

PhilippineStandardonAuditing(PSA)260(RevisedandRedrafted),Commu
nicationwithThoseChargedwithGovernanceshouldbereadinconjunction
with[proposed]PSA200(RevisedandRedrafted),OverallObjectiveoftheIn
dependentAuditor,andtheConductofanAuditinAccordancewithPhilippine
StandardsonAuditing.

Introduction
ScopeofthisPSA

ThisPhilippineStandardonAuditing(PSA)dealswiththeauditorsresp
onsibilitytocommunicatewiththosechargedwithgovernanceinrelati
ontoanauditoffinancialstatements.AlthoughthisPSAappliesirrespe
ctiveofanentitysgovernancestructureorsize,particularconsiderati
onsapplywhereallofthosechargedwithgovernanceareinvolvedinm
anaginganentity,andforlistedentities.ThisPSAdoesnotestablishreq
uirementsregardingtheauditorscommunicationwithanentitysma
nagementorownersunlesstheyarealsochargedwithagovernancerol
e.
ThisPSAhasbeendraftedintermsofanauditoffinancialstatements,b
utmayalsobeapplicable,adaptedasnecessaryinthecircumstances,t
oauditsofotherhistoricalfinancialinformationwhenthosechargedwi
thgovernancehavearesponsibilitytooverseethepreparationandpre
sentationoftheotherhistoricalfinancialinformation.
Recognizingtheimportanceofeffectivetwowaycommunicationduringanauditoffinancialstatements,thisPSApr
ovidesanoverarchingframeworkfortheauditorscommunicationwit
hthosechargedwithgovernance,andidentifiessomespecificmatters

tobecommunicatedwiththem.Additionalmatterstobecommunicate
d,whichcomplementtherequirementsofthisPSA,areidentifiedinoth
erPSAs(seeAppendix1).Furthermatters,notrequiredbythisorotherP
SAs,mayberequiredtobecommunicatedbylawsorregulations,byagr
eementwiththeentity,orbyadditionalrequirementsapplicabletothe
engagement,forexample,thestandardsofanationalprofessionalacc
ountancybody.NothinginthisPSAprecludestheauditorfromcommun
icatinganyothermatterstothosechargedwithgovernance.
(Ref:Para.A28A31)

EffectiveDate
4.
ThisPSAiseffectiveforauditsoffinancialstatementsforperiodsbeginn
ingonorafterDecember15,2009.

Objectives
5.

Theobjectivesoftheauditorareto:

(a)

Communicateclearlywiththosechargedwithgovernancetherespon
sibilitiesoftheauditorinrelationtothefinancialstatementaudit,anda
noverviewoftheplannedscopeandtimingoftheaudit;
(b)

Obtainfromthosechargedwithgovernanceinformationrelevanttoth
eaudit;
(c)

Providethosechargedwithgovernancewithtimelyobservationsarisi
ngfromtheauditthataresignificantandrelevanttotheirresponsibility
tooverseethefinancialreportingprocess;and
(d)
Promoteeffectivetwowaycommunicationbetweentheauditorandthosechargedwithgove
rnance.(Ref:Para.A1A4)

Definitions
6.
ForpurposesofthePSAs,thefollowingtermshavethemeanings
attributedbelow:

(a)
Thosechargedwithgovernance
Theperson(s)ororganization(s)

(e.g.,acorporatetrustee)withresponsibilityforoverseeingthestrate
gicdirectionoftheentityandobligationsrelatedtotheaccountabilityo
ftheentity.Thisincludesoverseeingthefinancialreportingprocess.Fo
rsomeentitiesinsomejurisdictions,thosechargedwithgovernancem
ayincludemanagementpersonnel,forexample,executivemembers
ofagovernanceboardofaprivateorpublicsectorentity,oranownermanager.Insomecases,thosechargedwithgovernanceareresponsi
1
bleforapproving
theentitysfinancialstatements(inothercasesmanagementhasthisr
esponsibility).Fordiscussionofthediversityofgovernancestructures
,seeparagraphsA5A12.
(b)
Management
Theperson(s)withexecutiveresponsibilityfortheconductoftheentity
soperations.Forsomeentitiesinsomejurisdictions,managementinc
ludessomeorallofthosechargedwithgovernance,forexample,execu
tivemembersofagovernanceboard,oranownermanager.Managementisresponsibleforthepreparationofthefinanci
alstatements,overseenbythosechargedwithgovernance,andinsom
2
ecasesmanagementisalsoresponsibleforapproving
theentitysfinancialstatements(inothercasesthosechargedwithgo
vernancehavethisresponsibility).

Requirements
ThoseChargedwithGovernance
7.
Theauditorshalldeterminetheappropriateperson(s)withint
heentitysgovernancestructurewithwhomtocommunicate
.(Ref:Para.A5A8)

1
Asdescribed atparagraph[A43]of[proposed]PSA700,
(Redrafted),TheIndependentAuditorsReportonGeneralPurposeFinancialStatements,
havingresponsibilityforapprovinginthiscontextmeanshaving theauthoritytoconcludeth
atallthestatementsthatcomprisethefinancialstatements,including therelated notes,ha
vebeenprepared.
2
Seefootnote1.

CommunicationwithaSubgroupofThoseChargedwithGovernance
8.

Whentheauditorcommunicateswithasubgroupofthosechargedw
ithgovernance,forexample,anauditcommittee,oranindividual,th
eauditorshalldeterminewhethertheauditoralsoneedstocommun
icatewiththegoverningbody.(Ref:Para.A9A11)
WhenAllofThoseChargedwithGovernanceareInvolvedinManagingtheEnti
ty
9.
Insomecases,allofthosechargedwithgovernanceareinvolvedinman
agingtheentity,forexample,asmallbusinesswhereasingleownerma
nagestheentityandnooneelsehasagovernancerole.Inthesecases,if
mattersrequiredbythisPSAarecommunicatedwithperson(s)withma
nagementresponsibilities,andthoseperson(s)alsohavegovernance
responsibilities,themattersneednotbecommunicatedagainwiththo
sesameperson(s)intheirgovernancerole.Thesemattersarenotedinp
aragraph12(c).Theauditorshallnonethelessbesatisfiedthatcommu
nicationwithperson(s)withmanagementresponsibilitiesadequately
informsallofthosewithwhomtheauditorwouldotherwisecommunica
teintheirgovernancecapacity.(Ref:Para.A12)
MatterstobeCommunicated
TheAuditorsResponsibilitiesinRelationtotheFinancialStatementAudit
10.
Theauditorshallcommunicatewiththosechargedwithgovernanceth
eresponsibilitiesoftheauditorinrelationtothefinancialstatementaud
it,includingthat:

(a)

Theauditorisresponsibleforformingandexpressinganopiniononthe
financialstatementsthathavebeenpreparedbymanagementwithth
eoversightofthosechargedwithgovernance;and
(b)
Theauditofthefinancialstatementsdoesnotrelievemanagementort
hosechargedwithgovernanceoftheirresponsibilities. (Ref:Para.A13A14)

PlannedScopeandTimingoftheAudit
11.
Theauditorshallcommunicatewiththosechargedwithgovernancea
noverviewoftheplannedscopeandtimingoftheaudit. (Ref:Para.A15-

A19)

SignificantFindingsfromtheAudit
12.
Theauditorshallcommunicatewiththosechargedwithgovernanc
e:(Ref:Para.A20)

(a)

Theauditorsviewsaboutsignificantqualitativeaspectsoftheenti
tysaccountingpractices,includingaccountingpolicies,accounti
ngestimatesandfinancialstatementdisclosures.Whenapplicabl
e,theauditorshallexplaintothosechargedwithgovernancewhyth
eauditorconsidersa
2 significantaccountingpractice,thatisacceptableundertheapplic
ablefinancialreportingframework,nottobemostappropriatetoth
eparticularcircumstancesoftheentity;(Ref:Para.A21)
(b)
Significantdifficulties,ifany,encounteredduringtheaudit;
(Ref:Para.A22)

(c)

Unlessallofthosechargedwithgovernanceareinvolvedinmanagi
ngtheentity:
(i)

3
4

Materialweaknesses,ifany,inthedesign,implementationoroper
atingeffectivenessofinternalcontrolthathavecometotheauditor
sattentionandhavebeencommunicatedtomanagementasrequi
3
4
redbyPSA315(Redrafted), orPSA330(Redrafted);
(ii) Significantmatters,ifany,arisingfromtheauditthatwere
discussed,orsubjecttocorrespondencewithmanagement;and (R
ef:Para.A23)

5
3

(iii) Writtenrepresentationstheauditorisrequesting;and

(d)
Othermatters,ifany,arisingfromtheauditthat,intheauditorsprofess
ionaljudgment,aresignificanttotheoversightofthefinancialreportin
gprocess.(Ref:Para.A24)

AuditorIndependence
13.
Inthecaseoflistedentities,theauditorshallcommunicatewiththos
echargedwithgovernance:(Ref:Para.A25A27)

(a)

Astatementthattheengagementteamandothersinthefirmasapprop
riate,thefirmand,whenapplicable,networkfirmshavecompliedwithr
elevantethicalrequirementsregardingindependence;and
(b)
(i)Allrelationshipsandothermattersbetweenthefirm,networkfirms,
andtheentitythat,intheauditorsprofessionaljudgment,mayreason
ablybethoughttobearonindependence.Thisshallincludetotalfeesch
argedduringtheperiodcoveredbythefinancialstatementsforaudita
ndnonauditservicesprovidedbythefirmandnetworkfirmstotheentityandc
omponentscontrolledbytheentity.Thesefeesshallbeallocatedtocat
egoriesthatareappropriatetoassistthosechargedwithgovernancein
assessingtheeffectofservicesontheindependenceoftheauditor;and
(ii)
Therelatedsafeguardsthathavebeenappliedtoelimina
teidentifiedthreatstoindependenceorreducethemtoa
nacceptablelevel.

3
PSA315 (Redrafted),Identifying and AssessingtheRisksofMaterialMisstatementThroug
h UnderstandingtheEntityand ItsEnvironment,paragraph32.
4
PSA330 (Redrafted),TheAuditorsResponsestoAssessedRisks,paragraph 19.

TheCommunicationProcess
EstablishingtheCommunicationProcess
14.
Theauditorshallcommunicatewiththosechargedwithgovernanc
etheform,timingandexpectedgeneralcontentofcommunication
s.(Ref:Para.A32A40)
FormsofCommunication
15.
Theauditorshallcommunicateinwritingwiththosechargedwithgov
ernanceregardingsignificantfindingsfromtheauditwhen,intheaudi
torsprofessionaljudgment,oralcommunicationwouldnotbeadequ
ate.Writtencommunicationsneednotincludeallmattersthatarosed
uringthecourseoftheaudit.(Ref:Para.
A41A43)

16.
Theauditorshallcommunicateinwritingwiththosechargedwithgo
vernanceregardingauditorindependencewhenrequiredbyparagr
aph13.
TimingofCommunications
17.
Theauditorshallcommunicatewiththosechargedwithgovernanceo
natimelybasis.(Ref:Para.A44A45)
AdequacyoftheCommunicationProcess
18.

Theauditorshallevaluatewhetherthetwowaycommunicationbetweentheauditorandthosechargedwithgover
nancehasbeenadequateforthepurposeoftheaudit.Ifithasnot,theau
ditorshallevaluatetheeffect,ifany,ontheauditorsassessmentofther
isksofmaterialmisstatementandabilitytoobtainsufficientappropriat
eauditevidence,andshalltakeappropriateaction. (Ref:Para.A46A48)

Documentation
19.
WheremattersrequiredbythisPSAtobecommunicatedarecommunic
atedorally,theauditorshalldocumentthem,andwhenandtowhomth
eywerecommunicated.Wheremattershavebeencommunicatedinw
riting,theauditorshallretainacopyofthecommunicationaspartofthe
auditdocumentation.(Ref:
Para.A49)

***
ApplicationandOtherExplanatoryMaterial
TheRoleofCommunication(Ref:Para.5)
A1.ThisPSAfocusesprimarilyoncommunicationsfromtheauditortothosec
hargedwithgovernance.Nevertheless,effectivetwowaycommunicationisimportantinassisting:

(a)
Theauditorandthosechargedwithgovernanceinunderstandingmatt
ersrelatedtotheauditincontext,andindevelopingaconstructivework
ingrelationship.Thisrelationshipisdevelopedwhilemaintainingthea
uditorsindependenceandobjectivity;

(b)

Theauditorinobtainingfromthosechargedwithgovernanceinformati
onrelevanttotheaudit.Forexample,thosechargedwithgovernance
mayassisttheauditorinunderstandingtheentityanditsenvironment,
inidentifyingappropriatesourcesofauditevidence,andinprovidingin
formationaboutspecifictransactionsorevents;and
(c)
Thosechargedwithgovernanceinfulfillingtheirresponsibilitytoovers
eethefinancialreportingprocess,therebyreducingtherisksofmateri
almisstatementofthefinancialstatements.

A2.Althoughtheauditorisresponsibleforcommunicatingmattersrequiredb
ythisPSA,managementalsohasaresponsibilitytocommunicatematt
ersofgovernanceinteresttothosechargedwithgovernance.Commun
icationbytheauditordoesnotrelievemanagementofthisresponsibilit
y.Similarly,communicationbymanagementwiththosechargedwithg
overnanceofmattersthattheauditorisrequiredtocommunicatedoes
notrelievetheauditoroftheresponsibilitytoalsocommunicatethem.C
ommunicationofthesemattersbymanagementmay,however,affect
theformortimingoftheauditorscommunicationwiththosechargedwi
thgovernance.
A3.Clearcommunicationofspecificmattersrequiredtobecommunicatedby
PSAsisanintegralpartofeveryaudit.PSAsdonot,however,requirethe
auditortoperformproceduresspecificallytoidentifyanyothermatters
tocommunicatewiththosechargedwithgovernance.
LegalorRegulatoryRestrictionsonCommunicatingwithThoseCh
argedwithGovernance
A4.Lawsorregulationsmayrestricttheauditorscommunicationofcertain
matterswiththosechargedwithgovernance.Forexample,lawsorre
gulationsmayspecificallyprohibitacommunication,orotheraction,
thatmightprejudiceaninvestigationbyanappropriateauthorityint
oanactual,orsuspected,illegalact.Insomecircumstances,potentia
lconflictsbetweentheauditorsobligationsofconfidentialityandobl
igationstocommunicatemaybecomplex.Insuchcases,theauditor
mayconsiderobtaininglegaladvice.
ThoseChargedwithGovernance(Ref:Para.7)
A5.Governancestructuresvarybyjurisdictionandbyentity,reflectingin
fluencessuchasdifferentculturalandlegalbackgrounds,andsize
andownershipcharacteristics.Forexample:

Insomejurisdictionsasupervisory(whollyormainlynonexecutive)boardexiststhatislegallyseparatefromanexecutive(man

agement)board(atwotierboardstructure).Inotherjurisdictions,boththesupervisoryande
xecutivefunctionsarethelegalresponsibilityofasingle,orunitary,boa
rd(aonetierboardstructure).
Insomeentities,thosechargedwithgovernanceholdpositionsthatar
eanintegralpartoftheentityslegalstructure,forexample,companyd
irectors.Inothers,forexample,somegovernmententities,abodythati
snotpartoftheentityischargedwithgovernance.
Insomecases,someorallofthosechargedwithgovernanceareinvolve
dinmanagingtheentity.Inothers,thosechargedwithgovernanceand
managementcomprisedifferentpersons.

A6.Inmostentities,governanceisthecollectiveresponsibilityofagoverning
body,suchasaboardofdirectors,asupervisoryboard,partners,propri
etors,acommitteeofmanagement,acouncilofgovernors,trustees,or
equivalentpersons.Insomesmallerentities,however,onepersonmay
bechargedwithgovernance,forexample,theownermanagerwheretherearenootherowners,orasoletrustee.Whengover
nanceisacollectiveresponsibility,asubgroupsuchasanauditcommitt
eeorevenanindividual,maybechargedwithspecifictaskstoassistthe
governingbodyinmeetingitsresponsibilities.Alternatively,asubgrou
porindividualmayhavespecific,legallyidentifiedresponsibilitiesthat
5
differfromthoseofthegoverningbody.
A7.SuchdiversitymeansthatitisnotpossibleforthisPSAtospecifyforallaudit
stheperson(s)withwhomtheauditoristocommunicateparticularmat
ters.Also,insomecasestheappropriateperson(s)withwhomtocomm
unicatemaynotbeclearlyidentifiablefromtheapplicablelegalframe
workorotherengagementcircumstances,forexample,entitieswhere
thegovernancestructureisnotformallydefined,suchassomefamilyownedentities,somenotforprofitorganizations,andsomegovernmententities.Insuchcases,the
auditormayneedtodiscussandagreewiththeengagingpartytherelev
antperson(s)withwhomtocommunicate.Indecidingwithwhomtoco
mmunicate,theauditorsunderstandingofanentitysgovernancestr
uctureandprocessesobtainedinaccordancewithPSA315(Redrafted)
isrelevant.Theappropriateperson(s)withwhomtocommunicatemay
varydependingonthemattertobecommunicated.

In corporationscovered bytheSECCodeofCorporateGovernance,aswellasin banks,theb

oard ofdirectorsisprimarilyresponsibleforcorporategovernanceofsuchentities.Oneofthe
dutiesoftheboard ofdirectorsisthecreationofanauditcommitteethatwillberesponsiblefor
thesetupofinternalauditfunctions.

A8.PSA600(RevisedandRedrafted)includesspecificmatterstobecommuni
6
catedbygroupauditorswiththosechargedwithgovernance.
Whentheentityisacomponentofagroup,theappropriateperson(s)wit
hwhomthecomponentauditorcommunicatesdependsontheengage

mentcircumstancesandthemattertobecommunicated.Insomecase
s,anumberofcomponentsmaybeconductingthesamebusinesseswit
hinthesamesystemofinternalcontrolandusingthesameaccountingp
ractices.Wherethosechargedwithgovernanceofthosecomponentsa
rethesame(e.g.,commonboardofdirectors),duplicationmaybeavoid
edbydealingwiththesecomponentsconcurrentlyforthepurposeofco
mmunication.
CommunicationwithaSubgroupofThoseChargedwithGovernance (Ref:Para.
8)

A9.Whenconsideringcommunicatingwithasubgroupofthosecharg
edwithgovernance,theauditormaytakeintoaccountsuchma
ttersas:

1
2
3
4

Therespectiveresponsibilitiesofthesubgroupandthegoverningbody
.
Thenatureofthemattertobecommunicated.
Relevantlegalorregulatoryrequirements.
Whetherthesubgrouphastheauthoritytotakeactioninrelationtothei
nformationcommunicated,andcanprovidefurtherinformationande
xplanationstheauditormayneed.

A10.Whendecidingwhetherthereisalsoaneedtocommunicateinformation,
infullorinsummaryform,withthegoverningbody,theauditormaybein
fluencedbytheauditorsassessmentofhoweffectivelyandappropriat
elythesubgroupcommunicatesrelevantinformationwiththegoverni
ngbody.Theauditormaymakeexplicitinagreeingthetermsofengage
mentthat,unlesspreventedbylawsorregulations,theauditorretainst
herighttocommunicatedirectlywiththegoverningbody.
A11.Auditcommittees(orsimilarsubgroupswithdifferentnames)existi
nmanyjurisdictions.Althoughtheirspecificauthorityandfunction
smaydiffer,communicationwiththeauditcommittee,whereonee
xists,hasbecomeakeyelementintheauditorscommunicationwi
ththosechargedwithgovernance.Goodgovernanceprinciplessu
ggestthat:

1
2

Theauditorwillbeinvitedtoregularlyattendmeetingsoftheauditcom
mittee.
Thechairoftheauditcommitteeand,whenrelevant,theothermember
softheauditcommittee,willliaisewiththeauditorperiodically.

PSA600 (Revised and Redrafted),SpecialConsiderationsAuditsofGroupFinancia

lStatements(Including theWorkofComponentAuditors),paragraphs4649.

Theauditcommitteewillmeettheauditorwithoutmanagemen

tpresentatleastannually.
WhenAllofThoseChargedwithGovernanceareInvolvedinManagingtheE
ntity(Ref:Para.9)
A12.Insomecases,allofthosechargedwithgovernanceareinvolvedinmana
gingtheentity,andtheapplicationofcommunicationrequirementsis
modifiedtorecognizethisposition.Insuchcases,communicationwith
person(s)withmanagementresponsibilitiesmaynotadequatelyinfor
mallofthosewithwhomtheauditorwouldotherwisecommunicateinth
eirgovernancecapacity.Forexample,inacompanywherealldirectors
areinvolvedinmanagingtheentity,someofthosedirectors(e.g.,onere
sponsibleformarketing)maybeunawareofsignificantmattersdiscus
sedwithanotherdirector(e.g.,oneresponsibleforthepreparationofth
efinancialstatements).
MatterstobeCommunicated
TheAuditorsResponsibilitiesinRelationtotheFinancialStatementAudit (Ref:
Para.10)

A13.Theauditorsresponsibilitiesinrelationtothefinancialstatementaudita
reoftenincludedintheengagementletterorothersuitableformofwritt
enagreementthatrecordstheagreedtermsoftheengagement.Provid
ingthosechargedwithgovernancewithacopyofthatengagementlett
erorothersuitableformofwrittenagreementmaybeanappropriatewa
ytocommunicatewiththemregardingsuchmattersas:
Theauditorsresponsibilityforperformingtheauditinaccordancewit
hPSAs,whichisdirectedtowardstheexpressionofanopiniononthefin
ancialstatements.ThemattersthatPSAsrequiretobecommunicated,
therefore,includesignificantmattersarisingfromtheauditofthefinan
cialstatementsthatarerelevanttothosechargedwithgovernanceino
verseeingthefinancialreportingprocess.
ThefactthatPSAsdonotrequiretheauditortodesignproceduresforth
epurposeofidentifyingsupplementarymatterstocommunicatewitht
hosechargedwithgovernance.
Whenapplicable,theauditorsresponsibilityforcommunicatingparti
cularmattersrequiredbylawsorregulations,byagreementwiththeen
tityorbyadditionalrequirementsapplicabletotheengagement,forex
ample,thestandardsofanationalprofessionalaccountancybody.
A14.Lawsorregulations,anagreementwiththeentityoradditionalrequirem
entsapplicabletotheengagementmayprovideforbroadercommuni
cationwiththosechargedwithgovernance.Forexample,
(a)anagreementwiththeentitymayprovideforparticularmatterstob
ecommunicatedwhentheyarisefromservicesprovidedbyafirmorne
tworkfirmotherthanthefinancialstatementaudit;or(b)themandate

ofapublicsectorauditormayprovideformatterstobecommunicatedt
hatcometotheauditorsattentionasaresultofotherwork,suchasperf
ormanceaudits.
PlannedScopeandTimingoftheAudit(Ref:Para.11)
A15.Communicationregardingtheplannedscopeandtimingoftheauditmay
:

(a)

Assistthosechargedwithgovernancetounderstandbettertheconseq
uencesoftheauditorswork,todiscussissuesofriskandmaterialitywit
htheauditor,andtoidentifyanyareasinwhichtheymayrequesttheau
ditortoundertakeadditionalprocedures;and
(b)
Assisttheauditortounderstandbettertheentityanditsenvironment.

A16.Careisrequiredwhencommunicatingwiththosechargedwithgovernan
ceabouttheplannedscopeandtimingoftheauditsoasnottocompromi
setheeffectivenessoftheaudit,particularlywheresomeorallofthosec
hargedwithgovernanceareinvolvedinmanagingtheentity.Forexamp
le,communicatingthenatureandtimingofdetailedauditprocedures
mayreducetheeffectivenessofthoseproceduresbymakingthemtoo
predictable.
A17.Matterscommunicatedmayinclude:
Howtheauditorproposestoaddressthesignificantrisksofmaterialmi
sstatement,whetherduetofraudorerror.
Theauditorsapproachtointernalcontrolrelevanttotheaudit.

Theapplicationofmaterialityinthecontextofanaudit.
A18.Otherplanningmattersthatitmaybeappropriatetodiscusswiththose
chargedwithgovernanceinclude:

Wheretheentityhasaninternalauditfunction,theextenttowhichthea
uditorwillusetheworkofinternalaudit,andhowtheexternalandintern
alauditorscanbestworktogetherinaconstructiveandcomplementar
ymanner.
1. Theviewsofthosechargedwithgovernanceof:
1. oTheappropriateperson(s)intheentitysgovernancestructur
ewithwhomtocommunicate.
2. oTheallocationofresponsibilitiesbetweenthosechargedwith
governanceandmanagement.

3. oTheentitysobjectivesandstrategies,andtherelatedbusines
srisksthatmayresultinmaterialmisstatements.

4. oMattersthosechargedwithgovernanceconsiderwarrantpart

3
4

icularattentionduringtheaudit,andanyareaswheretheyrequ
estadditionalprocedurestobeundertaken.
5. oSignificantcommunicationswithregulators.
6. oOthermattersthosechargedwithgovernanceconsidermayi
nfluencetheauditofthefinancialstatements.
Theattitudes,awareness,andactionsofthosechargedwithgovernan
ceconcerning(a)theentitysinternalcontrolanditsimportanceinthee
ntity,includinghowthosechargedwithgovernanceoverseetheeffect
ivenessofinternalcontrol,and(b)thedetectionorpossibilityoffraud.
Theactionsofthosechargedwithgovernanceinresponsetodevelopm
entsinaccountingstandards,corporategovernancepractices,excha
ngelistingrules,andrelatedmatters.
Theresponsesofthosechargedwithgovernancetopreviouscommuni
cationswiththeauditor.

[Proposed]PSA320 (Revised andRedrafted),Materialityin Planning andPerforminganA

udit.

A19.Whilecommunicationwiththosechargedwithgovernancemayassistt
heauditortoplanthescopeandtimingoftheaudit,itdoesnotchangeth
eauditorssoleresponsibilitytoestablishtheoverallauditstrategyan
dtheauditplan,includingthenature,timingandextentofproceduresn
ecessarytoobtainsufficientappropriateauditevidence.
SignificantFindingsfromtheAudit(Ref:Para.12)
A20.Thecommunicationoffindingsfromtheauditmayincluderequestingfu
rtherinformationfromthosechargedwithgovernanceinordertocom
pletetheauditevidenceobtained.Forexample,theauditormayconfir
mthatthosechargedwithgovernancehavethesameunderstandingo
fthefactsandcircumstancesrelevanttospecifictransactionsorevent
s.
SignificantQualitativeAspectsofAccountingPractices(Ref:Para.12(a))
A21.Financialreportingframeworksordinarilyallowfortheentitytomakeacc
ountingestimates,andjudgmentsaboutaccountingpoliciesandfinan
cialstatementdisclosures.Openandconstructivecommunicationab
outsignificantqualitativeaspectsoftheentitysaccountingpractices
mayincludecommentontheacceptabilityofsignificantaccountingpr
actices.Appendix2identifiesmattersthatmaybeincludedinthiscom
munication.
SignificantDifficultiesEncounteredDuringtheAudit (Ref:Para.12(b))
A22.Significantdifficultiesencounteredduringtheauditmayincludesuchm

attersas:

1
2
3
4
5
6

Significantdelaysinmanagementprovidingrequiredinformation.
Anunnecessarilybrieftimewithinwhichtocompletetheaudit.
Extensiveunexpectedeffortrequiredtoobtainsufficientappropriate
auditevidence.
Theunavailabilityofexpectedinformation.
Restrictionsimposedontheauditorbymanagement.
Managementsunwillingnesstomakeorextenditsassessmentofthee
ntitysabilitytocontinueasagoingconcernwhenrequested.
Insomecircumstances,suchdifficultiesmayconstituteascopelim
8
itationthatleadstoamodificationoftheauditorsopinion.

SignificantMattersDiscussed,orSubjecttoCorrespondencewithManagem
ent(Ref:Para.12(c)(ii))
A23.Significantmattersdiscussed,orsubjecttocorrespondencewithmanag
ementmayincludesuchmattersas:

1
2
3

Businessconditionsaffectingtheentity,andbusinessplansandstrate
giesthatmayaffecttherisksofmaterialmisstatement.
Concernsaboutmanagementsconsultationswithotheraccountants
onaccountingorauditingmatters.
Discussionsorcorrespondenceinconnectionwiththeinitialorrecurrin
gappointmentoftheauditorregardingaccountingpractices,theappli
cationofauditingstandards,orfeesforauditorotherservices.

OtherSignificantMattersRelevanttotheFinancialReportingProcess (Ref:Para.
12(d))

A24.Othersignificantmattersarisingfromtheauditthataredirectlyrelevan
ttothosechargedwithgovernanceinoverseeingthefinancialreporti
ngprocessmayincludesuchmattersasmaterialmisstatementsoffa
ctormaterialinconsistenciesininformationaccompanyingtheaudit
edfinancialstatementsthathavebeencorrected.
AuditorIndependence(Ref:Para.13)
A25.Theauditorissubjecttoindependenceandotherethicalrequirements,
whichordinarilycomprisePartsAandBoftheCodeofEthicsforProfess
ionalAccountantsinthePhilippinesrelatedtoanauditoffinancialstat
ementstogetherwithnationalrequirementsthataremorerestrictive
9
.
8

[Proposed]PSA705 (Revised andRedrafted),ModificationstotheOpinion intheIndepend

entAuditorsReport.
9
[Proposed]PSA200 (Revised andRedrafted),OverallObjectiveoftheIndependentAudi
tor,and theConductofanAuditinAccordancewith PhilippineStandardsonAuditing,par
agraph 14.

A26.Therelationshipsandothermatters,andsafeguardstobecommunic
ated,varywiththecircumstancesoftheengagement,butgenerall
yaddress:

(a)
Threatstoindependence,whichmaybecategorizedas:selfinterestthreats,selfreviewthreats,advocacythreats,familiaritythreats,andintimidation
threats;and
(b)
Safeguardscreatedbytheprofession,legislationorregulation,safegu
ardswithintheentity,andsafeguardswithinthefirmsownsystemsan
dprocedures.
Thecommunicationrequiredbyparagraph13(a)mayincludeaninad
vertentviolationofrelevantethicalrequirementsastheyrelatetoau
ditorindependence,andanyremedialactiontakenorproposed.

A27.Thecommunicationrequirementsrelatingtoauditorindependencetha
tapplyinthecaseoflistedentitiesmayalsoberelevantinthecaseofsom
eotherentities,particularlythosethatmaybeofsignificantpublicinter
estbecause,asaresultoftheirbusiness,theirsizeortheircorporatestat
us,theyhaveawiderangeofstakeholders.Examplesofentitiesthatare
notlistedentities,butwherecommunicationofauditorindependence
maybeappropriate,includepublicsectorentities,creditinstitutions,in
surancecompanies,andretirementbenefitfunds.Ontheotherhand,t
heremaybesituationswherecommunicationsregardingindependen
cemaynotberelevant,forexample,whereallofthosechargedwithgov
ernancehavebeeninformedofrelevantfactsthroughtheirmanageme
ntactivities.Thisisparticularlylikelywheretheentityisownermanaged,andtheauditorsfirmandnetworkfirmshavelittleinvolvem
entwiththeentitybeyondafinancialstatementaudit.
SupplementaryMatters(Ref:Para.3)
A28.Thosechargedwithgovernanceareresponsibleforensuring,throughov
ersightofmanagement,thattheentityestablishesandmaintainsinter
nalcontroltoprovidereasonableassurancewithregardtoreliabilityo
ffinancialreporting,effectivenessandefficiencyofoperationsandco
mpliancewithapplicablelawsandregulations.
A29.Theauditormaybecomeawareofsupplementarymattersthatdonotn

ecessarilyrelatetotheoversightofthefinancialreportingprocessbut
whichare,nevertheless,likelytobesignificanttotheresponsibilities
ofthosechargedwithgovernanceinoverseeingthestrategicdirectio
noftheentityortheentitysobligationsrelatedtoaccountability.Such
mattersmayinclude,forexample,significantdeficienciesingoverna
ncestructuresorprocesses,andsignificantdecisionsoractionsbyse
niormanagementthatlackappropriateauthorization.
A30.Indeterminingwhethertocommunicatesupplementarymatterswitht
hosechargedwithgovernance,theauditormaydiscussmattersofthis
kindofwhichtheauditorhasbecomeawarewiththeappropriatelevelo
fmanagement,unlessitisinappropriatetodosointhecircumstances.
A31.Ifasupplementarymatteriscommunicated,itmaybeappropriateforth
eauditortomakethosechargedwithgovernanceawarethat:

(a)

Identificationandcommunicationofsuchmattersisincidentaltothep
urposeoftheaudit,whichistoformanopiniononthefinancialstatemen
ts;
(b)

Noprocedureswerecarriedoutwithrespecttothematterotherthanan
ythatwerenecessarytoformanopiniononthefinancialstatements;an
d
(c)
Noprocedureswerecarriedouttodeterminewhetherothersuchmatte
rsexist.

TheCommunicationProcess
EstablishingtheCommunicationProcess(Ref:Para.14)
A32.Clearcommunicationoftheauditorsresponsibilities,theplannedsc
opeandtimingoftheaudit,andtheexpectedgeneralcontentofcom
municationshelpsestablishthebasisforeffectivetwowaycommunication.
A33.Mattersthatmayalsocontributetoeffectivetwowaycommunicationincludediscussionof:
Thepurposeofcommunications.Whenthepurposeisclear,theaudito
randthosechargedwithgovernancearebetterplacedtohaveamutual
understandingofrelevantissuesandtheexpectedactionsarisingfro
mthecommunicationprocess.
Theforminwhichcommunicationswillbemade.
Theperson(s)intheauditteamandamongstthosechargedwithgover

nancewhowillcommunicateregardingparticularmatters.
Theauditorsexpectationthatcommunicationwillbetwoway,andthatthosechargedwithgovernancewillcommunicatewithth
eauditormatterstheyconsiderrelevanttotheaudit,forexample,strat
egicdecisionsthatmaysignificantlyaffectthenature,timingandexte
ntofauditprocedures,thesuspicionorthedetectionoffraud,andconc
ernswiththeintegrityorcompetenceofseniormanagement.
Theprocessfortakingactionandreportingbackonmatterscommunic
atedbytheauditor.
Theprocessfortakingactionandreportingbackonmatterscommunic
atedbythosechargedwithgovernance.
A34.Thecommunicationprocesswillvarywiththecircumstances,includingt
hesizeandgovernancestructureoftheentity,howthosechargedwithg
overnanceoperate,andtheauditorsviewofthesignificanceofmatter
stobecommunicated.
Difficultyinestablishingeffectivetwowaycommunicationmayindicatethatthecommunicationbetweent
heauditorandthosechargedwithgovernanceisnotadequateforthep
urposeoftheaudit(seeparagraphA48).
ConsiderationsSpecifictoSmallerEntities
A35.Inthecaseofauditsofsmallerentities,theauditormaycommunicateinal
essstructuredmannerwiththosechargedwithgovernancethaninthe
caseoflistedorlargerentities.
CommunicationwithManagement
A36.Manymattersmaybediscussedwithmanagementintheordinarycou
rseofanaudit,includingmattersrequiredbythisPSAtobecommuni
catedwiththosechargedwithgovernance.Suchdiscussionsrecog
nizemanagementsexecutiveresponsibilityfortheconductofthee
ntitysoperationsand,inparticular,managementsresponsibilityf
orthepreparationofthefinancialstatements.
A37.Beforecommunicatingmatterswiththosechargedwithgovernance,t
heauditormaydiscussthemwithmanagement,unlessthatisinappro
priate.Forexample,itmaynotbeappropriatetodiscussquestionsof
managementscompetenceorintegritywithmanagement.Inadditi
ontorecognizingmanagementsexecutiveresponsibility,theseiniti
aldiscussionsmayclarifyfactsandissues,andgivemanagementano
pportunitytoprovidefurtherinformationandexplanations.Similarly
,whentheentityhasaninternalauditfunction,theauditormaydiscus
smatterswiththeinternalauditorbeforecommunicatingwiththosec
hargedwithgovernance.
CommunicationwithThirdParties

A38.Thosechargedwithgovernancemaywishtoprovidethirdparties,forex
ample,bankersorcertainregulatoryauthorities,withcopiesofawritt
encommunicationfromtheauditor.Insomecases,disclosuretothird
partiesmaybeillegalorotherwiseinappropriate.Whenawrittencom
municationpreparedforthosechargedwithgovernanceisprovidedt
othirdparties,itmaybeimportantinthecircumstancesthatthethirdp
artiesbeinformedthatthecommunicationwasnotpreparedwiththe
minmind,forexample,bystatinginwrittencommunicationswiththo
sechargedwithgovernance:

(a)

Thatthecommunicationhasbeenpreparedforthesoleuseofthosecha
rgedwithgovernanceand,whereapplicable,thegroupmanagement
andthegroupauditor,andshouldnotberelieduponbythirdparties;
(b)

Thatnoresponsibilityisassumedbytheauditortothirdparties;and
(c)
Anyrestrictionsondisclosureordistributiontothirdparties.

A39.Insomejurisdictionstheauditormayberequiredbylawsorregulation
sto,forexample:

2
3

Notifyaregulatoryorenforcementbodyofcertainmatterscommunica
tedwiththosechargedwithgovernance.Forexample,insomecountri
estheauditorhasadutytoreportmisstatementstoauthoritieswhere
managementandthosechargedwithgovernancefailtotakecorrectiv
eaction;
Submitcopiesofcertainreportspreparedforthosechargedwithgover
nancetorelevantregulatoryorfundingbodies,orotherbodiessuchas
acentralauthorityinthecaseofsomepublicsectorentities;or
Makereportspreparedforthosechargedwithgovernancepubliclyava
ilable.

A40.Unlessrequiredbylawsorregulationstoprovideathirdpartywithacopyo
ftheauditorswrittencommunicationswiththosechargedwithgovern
ance,theauditormayneedthepriorconsentofthosechargedwithgove
rnancebeforedoingso.
FormsofCommunication(Ref:Para.1516)
A41.Effectivecommunicationmayinvolvestructuredpresentationsandwrit
tenreportsaswellaslessstructuredcommunications,includingdiscus
sions.Theauditormaycommunicatemattersotherthanthoseidentifi
edinparagraphs15and16eitherorallyorinwriting.Writtencommunic
ationsmayincludeanengagementletterthatisprovidedtothosecharg
edwithgovernance.

A42.Inadditiontothesignificanceofaparticularmatter,theformofcommuni
cation(e.g.,whethertocommunicateorallyorinwriting,theextentofd
etailorsummarizationinthecommunication,andwhethertocommuni
cateinastructuredorunstructuredmanner)maybeaffectedbysuchfa
ctorsas:

1
2
3
4
5
6
7
8

Whetherthematterhasbeensatisfactorilyresolved.
Whethermanagementhaspreviouslycommunicatedthematter.
Thesize,operatingstructure,controlenvironment,andlegalstructure
oftheentity.
Inthecaseofanauditofspecialpurposefinancialstatements,whether
theauditoralsoauditstheentitysgeneralpurposefinancialstatemen
ts.
Legalrequirements.Insomejurisdictions,awrittencommunicationwi
ththosechargedwithgovernanceisrequiredinaprescribedformbyloc
allaw.
Theexpectationsofthosechargedwithgovernance,includingarrang
ementsmadeforperiodicmeetingsorcommunicationswiththeaudit
or.
Theamountofongoingcontactanddialoguetheauditorhaswiththose
chargedwithgovernance.
Whethertherehavebeensignificantchangesinthemembershipofag
overningbody.

A43.Whenasignificantmatterisdiscussedwithanindividualmemberoftho
sechargedwithgovernance,forexample,thechairofanauditcommit
tee,itmaybeappropriatefortheauditortosummarizethematterinlat
ercommunicationssothatallofthosechargedwithgovernancehavef
ullandbalancedinformation.
TimingofCommunications(Ref:Para.17)
A44.Theappropriatetimingforcommunicationswillvarywiththecircumstan
cesoftheengagement.Relevantcircumstancesincludethesignifican
ceandnatureofthematter,andtheactionexpectedtobetakenbythose
chargedwithgovernance.Forexample:

1
2

Communicationsregardingplanningmattersmayoftenbemadeearl
yintheauditengagementand,foraninitialengagement,maybemade
aspartofagreeingthetermsoftheengagement.
Itmaybeappropriatetocommunicateasignificantdifficultyencounte
redduringtheauditassoonaspracticableifthosechargedwithgovern
anceareabletoassisttheauditortoovercomethedifficulty,orifitislikel
ytoleadtoamodifiedopinion.Similarly,itmaybeappropriatetocomm
unicatematerialweaknessesinthedesign,implementationoroperati
ngeffectivenessofinternalcontrolthathavecometotheauditorsatte
ntionassoonaspracticable.
Communicationsregardingindependencemaybeappropriatewhen

eversignificantjudgmentsaremadeaboutthreatstoindependencea
ndrelatedsafeguards,forexample,whenacceptinganengagementt
oprovidenonauditservices,andataconcludingdiscussion.Aconcludingdiscussion
mayalsobeanappropriatetimetocommunicatefindingsfromtheaudi
t,includingtheauditorsviewsaboutthequalitativeaspectsoftheentit
ysaccountingpractices.
Whenauditingbothgeneralpurposeandspecialpurposefinancialstat
ements,itmaybeappropriatetocoordinatethetimingofcommunicati
ons.

A45.Otherfactorsthatmayberelevanttothetimingofcommunicationsinclu
de:

1
2
3
4

Thesize,operatingstructure,controlenvironment,andlegalstructure
oftheentitybeingaudited.
Anylegalobligationtocommunicatecertainmatterswithinaspecified
timeframe.
Theexpectationsofthosechargedwithgovernance,includingarrang
ementsmadeforperiodicmeetingsorcommunicationswiththeaudit
or.
Thetimeatwhichtheauditoridentifiescertainmatters,forexample,th
eauditormaynotidentifyaparticularmatter(e.g.,noncompliancewit
halaw)intimeforpreventiveactiontobetaken,butcommunicationoft
hemattermayenableremedialactiontobetaken.

AdequacyoftheCommunicationProcess(Ref:Para.18)
A46.Theauditorneednotdesignspecificprocedurestosupporttheevaluatio
nofthetwowaycommunicationbetweentheauditorandthosechargedwithgove
rnance;rather,thatevaluationmaybebasedonobservationsresultin
gfromauditproceduresperformedforotherpurposes.Suchobservati
onsmayinclude:

2
3
4

Theappropriatenessandtimelinessofactionstakenbythosecharged
withgovernanceinresponsetomattersraisedbytheauditor.Wheresig
nificantmattersraisedinpreviouscommunicationshavenotbeendea
ltwitheffectively,itmaybeappropriatefortheauditortoinquireastow
hyappropriateactionhasnotbeentaken,andtoconsiderraisingthepoi
ntagain.Thisavoidstheriskofgivinganimpressionthattheauditorissa
tisfiedthatthematterhasbeenadequatelyaddressedorisnolongersi
gnificant.
Theapparentopennessofthosechargedwithgovernanceintheircom
municationswiththeauditor.
Thewillingnessandcapacityofthosechargedwithgovernancetomee
twiththeauditorwithoutmanagementpresent.
Theapparentabilityofthosechargedwithgovernancetofullycompreh

5
6

endmattersraisedbytheauditor,forexample,theextenttowhichthos
echargedwithgovernanceprobeissues,andquestionrecommendati
onsmadetothem.
Difficultyinestablishingwiththosechargedwithgovernanceamutual
understandingoftheform,timingandexpectedgeneralcontentofco
mmunications.
Whereallorsomeofthosechargedwithgovernanceareinvolvedinma
nagingtheentity,theirapparentawarenessofhowmattersdiscussed
withtheauditoraffecttheirbroadergovernanceresponsibilities,aswe
llastheirmanagementresponsibilities.
Whetherthetwowaycommunicationbetweentheauditorandthosechargedwithgove
rnancemeetsapplicablelegalandregulatoryrequirements.

A47.AsnotedinparagraphA1,effectivetwowaycommunicationassistsboththeauditorandthosechargedwithg
overnance.Further,PSA315(Redrafted)identifiesparticipationbyth
osechargedwithgovernance,includingtheirinteractionwithinterna
laudit,ifany,andexternalauditors,asanelementoftheentityscontr
10
olenvironment. Inadequatetwowaycommunicationmayindicate
PSA315(Redrafted),paragraph A66.

anunsatisfactorycontrolenvironmentandinfluencetheauditorsa
ssessmentoftherisksofmaterialmisstatements.Thereisalsoariskt
hattheauditormaynothaveobtainedsufficientappropriateauditev
idencetoformanopiniononthefinancialstatements.
A48.Ifthetwowaycommunicationbetweentheauditorandthosechargedwithgov
ernanceisnotadequateandthesituationcannotberesolved,theaudi
tormaytakesuchactionsas:
Modifyingtheauditorsopiniononthebasisofascopelimitation.
Obtaininglegaladviceabouttheconsequencesofdifferentcoursesof
action.
Communicatingwiththirdparties(e.g.,aregulator),orahigherauthori
tyinthegovernancestructurethatisoutsidetheentity,suchastheown
ersofabusiness(e.g.,shareholdersinageneralmeeting),ortherespon
siblegovernmentministerorparliamentinthepublicsector.
Withdrawingfromtheengagementwherepermittedintherelevantjur
isdiction.
Documentation(Ref:Para.19)
A49.Documentationoforalcommunicationmayincludeacopyofminutespre
paredbytheentityretainedaspartoftheauditdocumentationwhereth
oseminutesareanappropriaterecordofthecommunication.

Acknowledgment
ThisPSAisbasedonInternationalStandardonAuditing260(RevisedandRe
drafted),CommunicationwithThoseChargedwithGovernance,issued
bytheInternationalAuditingandAssuranceStandardsBoard.
TherearenosignificantdifferencesbetweenthisPSA260(RevisedandRed
rafted)andISA260(RevisedandRedrafted).

Appendi
x1
(Ref:Par
a.3)

SpecificRequirementsin[Proposed]ISQC1(Redrafted)and
OtherPSAsthatRefertoCommunicationswithThoseCharge
dWithGovernance
11

Thisappendixidentifiesparagraphsin[proposed]ISQC1(Redrafted)andoth
erPSAsasatDecember31,2007thatrequirecommunicationofspecificmatt
erswiththosechargedwithgovernance.Thelistisnotasubstituteforconside
ringtherequirementsandrelatedapplicationandotherexplanatorymateria
linPSAs.

[Proposed]ISQC1(Redrafted),QualityControlforFirmsthatPerformA
uditsandReviewsofFinancialStatements,andOtherAssuranceandR
elatedServicesEngagementsparagraph[36(a)]
2 [Proposed]PSA200(RevisedandRedrafted),OverallObjectiveoftheI
ndependentAuditor,andtheConductofanAuditinAccordancewithPh
ilippineStandardsonAuditingparagraph[7and8]
3 PSA240(Redrafted),TheAuditorsResponsibilitiesRelatingtoFraudi
nanAuditofFinancialStatementsparagraphs21,38(c)and4042
4 [Proposed]PSA250(Redrafted),TheAuditorsResponsibilitiesRelati
ngtoLawsandRegulationsinanAuditofFinancialStatements
paragraphs[12,14,17and2123]
5 PSA315(Redrafted),IdentifyingandAssessingtheRisksofMaterialM
isstatementThroughUnderstandingtheEntityandItsEnvironment
paragraph32
6 PSA330(Redrafted),TheAuditorsResponsestoAssessedRisks
paragraph19
7 [Proposed]PSA450(RevisedandRedrafted),EvaluationofMisstate
mentsIdentifiedduringtheAuditparagraphs[1517]
8 [Proposed]PSA510(Redrafted),InitialAuditEngagementsOpenin
gBalancesparagraph[6]
9 [Proposed]PSA550(RevisedandRedrafted),RelatedParties
paragraphs[16,23(e),27and28]
10 PSA560(Redrafted),SubsequentEvents

paragraphs7(b),9,10(a),13(b),14(a)and17

11 [Proposed]PSA570(Redrafted),GoingConcern
12
13
14
15

paragraphs[24and25]
PSA580,WrittenRepresentationsparagraph19
PSA600(RevisedandRedrafted),SpecialConsiderationsAuditsof
GroupFinancialStatements(IncludingtheWorkofComponentAuditor
s)paragraph49
[Proposed]PSA705(RevisedandRedrafted),ModificationstotheOpi
nionintheIndependentAuditorsReportparagraphs[14,16and30]
[Proposed]PSA706(RevisedandRedrafted),EmphasisofMatterPara
graphsandOtherMatter(s)ParagraphsintheIndependentAuditorsR
eportparagraph

[Proposed]ISQC1 (Redrafted),QualityControlforFirmsthatPerformAuditsandReviewsofF
inancialStatements,andOtherAssuranceandRelatedServicesEngagements.

[10]

Appendi
x2

(Ref:Para.12(a),and
A21)

QualitativeAspectsofAccountingPractices
Thecommunicationrequiredbyparagraph12(a),anddiscussedinparagra
phA21,mayincludesuchmattersas:
AccountingPolicies
Theappropriatenessoftheaccountingpoliciestotheparticularcircum
stancesoftheentity,havingregardtotheneedtobalancethecostofpro
vidinginformationwiththelikelybenefittousersoftheentitysfinancia
lstatements.Whereacceptablealternativeaccountingpoliciesexist,t
hecommunicationmayincludeidentificationofthefinancialstateme
ntitemsthatareaffectedbythechoiceofsignificantaccountingpolicie
saswellasinformationonaccountingpoliciesusedbysimilarentities.
Theinitialselectionof,andchangesinsignificantaccountingpolicies,i
ncludingtheapplicationofnewaccountingpronouncements.Thecom
municationmayinclude:theeffectofthetimingandmethodofadoptio
nofachangeinaccountingpolicyonthecurrentandfutureearningsoft
heentity;andthetimingofachangeinaccountingpoliciesinrelationto
expectednewaccountingpronouncements.
Theeffectofsignificantaccountingpoliciesincontroversialoremergin
gareas(orthoseuniquetoanindustry,particularlywhenthereisalacko
fauthoritativeguidanceorconsensus).
Theeffectofthetimingoftransactionsinrelationtotheperiodinwhicht
heyarerecorded.
Foritemsforwhichestimatesaresignificant,issuesdiscussedinPSA54
0

AccountingEstimates
12

(RevisedandRedrafted),including,forexample:

a
b
c
d
e

oManagementsidentificationofaccountingestimates.
oManagementsprocessformakingaccountingestimates.
oRisksofmaterialmisstatement.
oIndicatorsofpossiblemanagementbias.
oDisclosureofestimationuncertaintyinthefinancialstatements.

PSA540(Revised and Redrafted),AuditingAccounting Estimates,IncludingFairValueAc

countingEstimates,and Related Disclosures.

FinancialStatementDisclosures
Theissuesinvolved,andrelatedjudgmentsmade,informulatingparti
cularlysensitivefinancialstatementdisclosures(e.g.,disclosuresrela
tedtorevenuerecognition,remuneration,goingconcern,subsequent
events,andcontingencyissues).
Theoverallneutrality,consistency,andclarityofthedisclosuresinthe
financialstatements.
RelatedMatters
Thepotentialeffectonthefinancialstatementsofsignificantrisks,exp
osuresanduncertainties,suchaspendinglitigation,thataredisclosed
inthefinancialstatements.
Theextenttowhichthefinancialstatementsareaffectedbyunusualtr
ansactions,includingnonrecurringamountsrecognizedduringtheperiod,andtheextenttowhic
hsuchtransactionsareseparatelydisclosedinthefinancialstatement
s.
Thefactorsaffectingassetandliabilitycarryingvalues,includingthee
ntitysbasesfordeterminingusefullivesassignedtotangibleandintan
gibleassets.Thecommunicationmayexplainhowfactorsaffectingca
rryingvalueswereselectedandhowalternativeselectionswouldhave
affectedthefinancialstatements.
Theselectivecorrectionofmisstatements,forexample,correctingmi
sstatementswiththeeffectofincreasingreportedearnings,butnottho
sethathavetheeffectofdecreasingreportedearnings.
ThisPSA260(RevisedandRedrafted),CommunicationwithThoseCharged
withGovernance,wasunanimouslyapprovedforadoptiononApril28,2008
bythemembersoftheAuditingandAssuranceStandardsCouncil.

BenjaminR.Punongbayan,Chairman

FelicidadA.Abad

ErwinVincentG.Alcala

DavidL.Balangue

EliseoA.Fernandez

Ma.CeciliaF.Ortiz

JoaquinP.Tolentino

JaimeE.Ysmael

AntonioP.Acyatan

FroilanG.Ampil

Ma.GraciaCasalsDiaz

JaimeP.Naranjo

NestorioC.Roraldo

EdithaO.Tuason