Why it is important for auditors to communicate with those charged with governance?

Main Article Content

Yujin Kim

Jiyeun Hong

Korea Capital Market Institute

Jungin An

Sungkyul University

Keywords

Communication, Corporate Social Responsibility, Auditor, Audit Committee, ncial Reporting Quality

Abstract

We examine the effect of communication between external auditors and those charged with governance has on corporate social responsibility [CSR], focusing on amendment of the Act on External Audit of Stock Companies of Korea which emphasizes communication. We find that higher frequency of communication increases CSR, with faceto- face meetings having a stronger positive effect than text-based. This finding emphasizes the need for auditors to actively communicate face-to-face with those charged with governance, as this will increase the auditors’ accurate grasp of the firm and improve the quality of the audit services and financial reporting, leading to improved CSR.

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How to Cite

Kim, Y., Hong, J., & An, J. . [2021]. Does Communication Between External Auditors And Those Charged With Governance Positively Affect Corporate Social Responsibility? Evidence From Korea. Journal of Applied Business Research [JABR], 37[6], 541–252. //doi.org/10.19030/jabr.v37i6.10398

ISA 260 Communication with Those Charged with Governance provides guidance to auditors in relation to communicating with those charged with governance on matters arising from the audit of an entity’s financial statements.

Required:

[i] Explain why it is important that auditors communicate throughout the audit with those charged with governance; and [2 marks]

[ii] Describe THREE examples of matters that the auditors may communicate to those charged with
governance. [3 marks]

1666 others have taken this question

The auditor should aim to develop a constructive working relationship with those charged with governance, whilst retaining his independence and objectivity, and under ISA [UK] 260, one of his objectives is to promote effective two-way communication with those charged with governance.

The main purposes of such communication are:

•to assist the auditor and those charged with governance in understanding matters related to the audit. This includes communicating clearly the responsibilities of the auditor in relation to the audit and an overview of the planned timing and scope of the work;

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When should the auditor communicate with those charged with governance?

[4] If the entity includes other information in documents containing audited financial statements, the auditor should communicate with those charged with governance the auditor's responsibility with respect to such other information, any procedures performed relating to the other information, and the results.

Which of the following matters should an auditor communicate to those charged with governance?

The auditor is required to inform those charged with governance about misstatements discovered by the auditor and not subsequently corrected by management. This communication should include management changes in the application of significant accounting policies.

What are the auditor's responsibility as for communication of audit matters with those charged with governance is concerned?

'The auditor should assess whether those charged with governance have an understanding of the form, timing and expected general content of communications with the auditor sufficient for their purposes and, if not, should take appropriate action.

What should be communicated to those charged with governance?

11 The auditor should communicate with those charged with governance an overview of the planned scope and timing of the audit, which includes com- municating about the significant risks identified by the auditor.