Advanced Audit and Assurance (International) · Reports to those charged with governance and management

Auditor Independence and Other Communications with TCWG

Updated 11 October 2026 · Fact-checked

Auditors must communicate with those charged with governance (TCWG) on independence, significant audit findings, control deficiencies, fraud, non-compliance and key audit matters. ISA 260 sets the framework. To answer exam questions, state what to communicate, to whom, when and in what form, then apply it to the scenario.

Understand Auditor Independence and Other Communications with TCWG

Those charged with governance (TCWG) oversee the entity's strategy and its financial reporting. In many companies this means the board or the audit committee. Management runs the business. TCWG supervise management. The auditor reports to both, but different matters go to different people.

Two-way communication is the aim. The auditor tells TCWG about the audit approach, findings and independence. TCWG tell the auditor about their concerns, risks and any suspected fraud. This helps the auditor and supports good governance.

Independence is the key ethical matter. For listed entities, ISA 260 requires the auditor to communicate in writing a statement that the engagement team, the firm and, where applicable, network firms have complied with relevant ethical requirements on independence. The auditor also communicates all relationships and other matters that may reasonably bear on independence, and the related safeguards. Examples are non-audit services, fees, long association and family or financial interests. For other entities the auditor communicates where appropriate.

Other communications cover different ground. ISA 260 covers the planned scope and timing, significant findings, and auditor independence. ISA 265 covers significant deficiencies in internal control. These go in writing to TCWG on a timely basis. They also go in writing to management, at an appropriate level and on a timely basis, unless that would be inappropriate. Other deficiencies go to management on a timely basis if they merit its attention, unless management has already been told about them. These may be communicated orally or in writing, and the auditor documents any oral communication. ISA 240 covers fraud. All identified or suspected fraud is communicated on a timely basis to the appropriate level of management. It also goes to TCWG where it involves management, employees with significant roles in internal control, or others where the fraud results in a material misstatement. ISA 250 covers non-compliance with laws. The auditor discusses the matter with management where appropriate and obtains evidence. Unless it is clearly inconsequential, the auditor communicates identified or suspected non-compliance to TCWG. Where management or TCWG are suspected of involvement, the auditor considers communicating to the next higher authority, such as an audit committee or supervisory board. If no higher authority exists, the auditor considers taking legal advice. ISA 701 covers key audit matters (KAMs) for listed entities. These are matters of most significance in the audit. The auditor tells TCWG which KAMs they plan to report and discusses them. A matter that gives rise to a modified opinion or a material uncertainty is not described as a KAM.

Timing matters. Communicate early enough for TCWG to act. Planning matters go early. Findings and independence go before the auditor's report is issued. Document oral communications. If communication is inadequate, consider the effect on the audit and take legal advice if needed.

Key rules to remember

ISA 260: matters to communicate: Responsibilities + planned scope and timing + significant findings + independence; For listed entities, communicate independence in writing: a statement of compliance, all relationships and other matters that may reasonably bear on independence, and the safeguards. For other entities, communicate it where appropriate.
ISA 265: deficiencies: Significant deficiencies → TCWG in writing on a timely basis, and to management in writing on a timely basis unless inappropriate. Other deficiencies → management on a timely basis if they merit its attention, unless it has already been told; Only deficiencies you have identified during the audit. The audit is not designed to find all deficiencies. Other deficiencies may be communicated orally or in writing, and you document oral communication.
ISA 701: KAMs: KAMs = matters communicated with TCWG that required significant auditor attention and were most significant in the audit; Required for listed entities. Not a substitute for a modified opinion, and not a separate opinion on those matters. A matter giving rise to a modified opinion or a material uncertainty is not described as a KAM.
Independence communication: Threat + safeguard + conclusion on whether independence is maintained; Threats: self-interest, self-review, advocacy, familiarity, intimidation.
Fraud and non-compliance: All identified or suspected fraud → appropriate level of management on a timely basis. Fraud involving management, employees with significant roles in internal control, or others where it results in a material misstatement → also TCWG. Non-compliance with laws → discuss with management where appropriate; communicate to TCWG unless clearly inconsequential. Where management or TCWG are suspected of involvement → consider the next higher authority and legal advice; Check confidentiality duty and local law on whether to report to an outside authority.

How to solve Auditor Independence and Other Communications with TCWG questions

Use this method for any requirement on communicating with TCWG. It keeps your answer relevant to the scenario.

1Read the requirement. Decide whether it asks what to communicate, to whom, how, when or the ethical issue.
2Identify the matter in the scenario: independence, control deficiency, fraud, non-compliance, KAM or other.
3Name the standard and the rule briefly, for example ISA 265 requires written communication of significant deficiencies.
4Decide the recipient. Management-only issues may go to management. Significant, fraud or integrity matters go to TCWG.
5For independence, state the threat type, how significant it is and the safeguards. Say whether safeguards are enough or the auditor should decline or resign.
6Apply to the facts. Use figures, names and the entity's status (listed or not).
7Add timing and form: written or oral, before the report is signed, and documentation.
8Close with a clear recommendation and any consequences for the audit opinion, KAMs or reporting.

Quickest way: Who, what, when, how

When to use it: Use it when time is short and the question lists several matters to communicate.

Who: TCWG or management.
What: the exact matter and the standard.
When: timely, and before the auditor's report for findings and independence.
How: significant deficiencies in writing. For listed entities, independence in writing: a statement of compliance, all relationships and other matters that may reasonably bear on independence, and the safeguards. For other entities, communicate independence where appropriate. Significant audit findings in writing if oral communication would not be adequate. Other deficiencies may be oral or written. Document all oral communications.
So what: effect on the opinion, KAMs or the engagement.

Common mistakes in Auditor Independence and Other Communications with TCWG

Confusing ISA 260 and ISA 265.
Both involve reporting to TCWG and sound alike.
Fix: ISA 260 is the general communication framework. ISA 265 is only control deficiencies. Say which one you are applying.
Saying all deficiencies go to TCWG.
Students overlook the significance test.
Fix: Significant deficiencies go to TCWG in writing, and also to management in writing unless that is inappropriate. Other deficiencies go to management if they merit its attention and it has not already been told. These may be oral or written, and you document oral communication.
Listing threats without safeguards or a conclusion.
Students recall the five threats and stop.
Fix: State the threat, its significance, the safeguard and whether independence is still acceptable.
Treating KAMs as a modified opinion.
Both highlight problems in the auditor's report.
Fix: KAMs do not modify the opinion. They are matters of most significance. A matter that needs a modification is handled under ISA 705, and a material uncertainty is reported separately. Neither is described as a KAM.
Reporting management fraud to management only.
Students forget management may be the wrongdoer.
Fix: Where management is involved, communicate to TCWG, and consider legal advice and external reporting duties.
Ignoring entity type.
Students apply listed-entity rules to every client.
Fix: Check whether the entity is listed. KAMs and the mandatory independence confirmation apply to listed entities.

Worked examples

Example 1

You are the audit manager of Zenith Co, a listed company. The firm's tax department prepared Zenith's corporate tax return, and the fee is significant. Explain the independence matters you would communicate to TCWG and what you would recommend.

Show the solution

Identify the matter: a non-audit service (tax compliance) to a listed audit client.
Name the threat. Self-review is possible if the audit depends on tax figures the firm prepared. Self-interest arises if fees are significant.
Assess significance. Preparing the return is normally not a major threat if management takes the decisions. The size of the fee relative to total fees is relevant.
Safeguards: use staff separate from the audit team, apply a second partner review, and get management to approve the return.
Communication: tell TCWG about the service, fees and safeguards. Confirm that the firm, team and network firms comply with independence requirements.
Conclusion: independence is likely maintained if safeguards work. If the fee is too high, consider reducing the service or declining the work.

Answer: Communicate the tax service as a self-review and self-interest threat, describe the safeguards, disclose fees and confirm compliance with ethical requirements. Independence is maintained if the safeguards are effective. If not, withdraw from the service or the engagement.

Example 2

During the audit of Kora Ltd, a listed company, you find that the finance director has overridden the approval control on supplier payments. You also find the accounts payable ledger has minor coding errors. How should you communicate these matters?

Show the solution

Separate the matters. The control override is likely a significant deficiency, but this is a judgement based on its potential for misstatement. Coding errors are minor.
Apply ISA 265. If you conclude the override is a significant deficiency, communicate it to TCWG in writing and on a timely basis. Also communicate it in writing to management at an appropriate level on a timely basis, unless that would be inappropriate. Here the finance director is involved, so consider carefully who in management receives it.
Consider fraud. Management override suggests possible fraud, so consider ISA 240. Communicate on a timely basis to the appropriate level of management and to TCWG, because management is involved.
Content: describe the deficiency, its potential effects, and give recommendations.
Minor coding errors are other deficiencies. Report them to management on a timely basis if they merit its attention and it has not already been told, for example in a management letter. You may communicate them orally or in writing, and you document oral communication.
Consider KAMs: a KAM is drawn from matters communicated with TCWG. If the override led to a material misstatement or a modified opinion, handle it under ISA 705. It is not described as a KAM and a KAM is not a substitute. If the issue is resolved and the audit work on the related risk still needed significant attention, discuss with TCWG whether that risk is a KAM.
Document discussions and management responses.

Answer: Report the payment control override in writing to TCWG as a likely significant deficiency, subject to your judgement of its potential for misstatement, and also in writing to management at an appropriate level unless inappropriate. Treat it as a potential fraud risk. Report the minor coding errors to management if they merit its attention and have not already been communicated, orally or in writing, and document any oral communication. A matter that leads to a modified opinion is not reported as a KAM.

Exam tips

Always tie your answer to the scenario facts. Generic lists of ISA requirements earn few marks.
Check whether the entity is listed before mentioning KAMs or mandatory independence confirmation.
For independence questions, finish with a conclusion on whether to accept, continue or resign.
Use professional skills: write in a tone suitable for a report to the audit committee if the requirement asks for one.
Show the difference between TCWG and management recipients whenever the question mentions both.

Practice questions from Reports to those charged with governance and management

Auditor Independence and Other Communications with TCWG in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateAuditor Independence and Operational and Financial Control

Auditor Independence and Other Communications with TCWG: frequently asked questions

What is the difference between ISA 260 and ISA 265?

ISA 260 sets the general requirements for communicating with TCWG, including scope, findings and independence. ISA 265 deals only with communicating deficiencies in internal control. Significant deficiencies go to TCWG in writing.

Must the auditor always communicate independence to TCWG?

For listed entities, ISA 260 requires the auditor to communicate on independence, including compliance with ethical requirements and related matters and safeguards. For other entities, the auditor does this where appropriate.

How do KAMs relate to communication with TCWG?

Under ISA 701, KAMs are selected from the matters communicated with TCWG. The auditor chooses those that required significant attention and were most significant. Discussing them with TCWG helps avoid surprises in the report. A matter that leads to a modified opinion or a material uncertainty is not described as a KAM.

Who should receive fraud communications?

All identified or suspected fraud is communicated on a timely basis to the appropriate level of management. It also goes to TCWG where it involves management, employees with significant roles in internal control, or others where the fraud results in a material misstatement. The auditor also considers confidentiality and law on external reporting.