SA 260 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
SA 260 requires the auditor to talk to the people who oversee the company's financial reporting, such as the board or audit committee, at the planning stage and again when significant findings emerge. This article explains who they are, what must be said, when, and what is recorded.
SA 260 (Revised), as effective for audits of financial statements for periods beginning on or after 1 April 2017, applies to every audit of financial statements. ICAI may revise standards, so check icai.org for the current text.
The auditor must identify the right people in the governance structure and tell them: the auditor's responsibilities, an overview of the planned scope and timing including significant risks, and the significant findings from the audit. For listed entities the auditor also gives a written statement on independence. Communication must be timely, may be written where oral would not be adequate, and its adequacy is evaluated. Management still has its own duty to inform those charged with governance.
Why this communication matters (paragraphs 1-7)
Those charged with governance (TCWG) are the people or organisations responsible for overseeing the entity's strategic direction and accountability, including the financial reporting process (paragraph 10(a)). In some entities they include management, as with executive directors or an owner-manager.
Paragraph 4 says two-way communication helps the auditor and governance understand audit matters in context, helps the auditor obtain information relevant to the audit, and helps governance oversee financial reporting and so reduce the risk of material misstatement. Management also has a responsibility to communicate matters of governance interest; the auditor's communication does not remove it, and management's communication does not remove the auditor's (paragraph 5). Paragraph 7 warns that law may restrict some communications, for example where it would prejudice an investigation into a suspected illegal act, and legal advice may be needed.
The objectives (paragraph 9) are to communicate the auditor's responsibilities and an overview of the planned scope and timing, to obtain relevant information from governance, to give timely observations significant to financial reporting oversight, and to promote effective two-way communication.
Who to communicate with (paragraphs 11-13)
The auditor determines the appropriate people within the governance structure (paragraph 11). Structures vary: a unitary board, a two-tier board, an audit committee or, in a small business, the owner (A1-A4). If the auditor communicates with a sub-group such as an audit committee, the auditor decides whether the full governing body also needs to be told (paragraph 12). If all of those charged with governance also manage the entity, the matters need not be communicated twice, but the auditor must be satisfied that the communication adequately informs them in their governance role (paragraph 13).
For companies, the audit committee's role is set out in the Companies Act; see our posts on section 177 and the audit committee and audit committee in practice.
What must be communicated
| Matter | Content | Paragraph |
|---|---|---|
| Auditor's responsibilities | The auditor forms and expresses an opinion on statements prepared by management with TCWG oversight; the audit does not relieve management or TCWG of their responsibilities | 14 |
| Planned scope and timing | An overview, including the significant risks the auditor has identified | 15 |
| Qualitative aspects of accounting practices | Significant policies, estimates and disclosures, and why an acceptable practice is not considered most appropriate for the entity, where that applies | 16(a) |
| Significant difficulties | Difficulties met during the audit | 16(b) |
| Significant matters discussed with management, and representations requested | Unless all of TCWG are involved in management | 16(c) |
| Circumstances affecting the report | Anything that changes the form and content of the report | 16(d) |
| Other significant matters | Anything relevant to oversight of the financial reporting process | 16(e) |
| Independence (listed entities) | See below | 17 |
Appendix 2 of the SA offers prompts for qualitative aspects: the appropriateness of policies, changes in policies, the effect of timing, how estimates are made, the neutrality, consistency and clarity of disclosures, unusual transactions, factors affecting carrying values, and the selective correction of misstatements. A reader can use it as a discussion checklist without reproducing it.
Independence of the auditor (listed entities, paragraph 17)
For listed entities, the auditor communicates a statement that the engagement team, the firm and, where applicable, network firms have complied with relevant ethical requirements on independence, together with all relationships and other matters that may reasonably be thought to bear on independence, including total fees for audit and non-audit services to the entity and its controlled components, allocated to categories that help TCWG judge the effect on independence, and the safeguards applied. The communication must be in writing (paragraph 20). The limits on non-audit services for companies are in our section 144 explainer.
The communication process (paragraphs 18-23)
- Establish it. The auditor communicates the form, timing and expected general content of communications (paragraph 18).
- Form. In writing about significant findings if, in the auditor's judgment, oral communication would not be adequate; written communications need not include everything that arose (paragraph 19).
- Timing. On a timely basis (paragraph 21). Planning matters should come early; significant findings in time for governance to act before the statements are approved (A49-A50).
- Adequacy. The auditor evaluates whether the two-way communication has been adequate. If not, the auditor evaluates the effect on the risk assessment and ability to get evidence, and takes appropriate action (paragraph 22).
- Documentation. Matters communicated orally are recorded in the audit documentation with when and to whom they were communicated; written communications are kept (paragraph 23).
Matters required elsewhere
Paragraph 3 explains that other standards also require communications, and Appendix 1 lists them. In summary, the appendix refers to a specified paragraph in SQC 1 and to SA 240, SA 250, SA 265, SA 450, SA 505, SA 510, SA 550, SA 560, SA 570 (Revised), SA 610 (Revised), SA 701, SA 705 (Revised), SA 706 (Revised), SA 710 and SA 720 (Revised). Specific content for internal control deficiencies is in SA 265. Key audit matters, for entities where SA 701 applies, are covered in SA 701.
Illustrative example
At the planning stage for Dhillon Steels Ltd, a listed company, the audit partner meets the audit committee. She explains that the auditor's role is to give an opinion and does not relieve management of its duties, outlines the scope and timetable, and names revenue cut-off and the valuation of inventory as significant risks. At the conclusion, she sends a written note covering a change in depreciation policy, the difficulty in getting a stockholder's confirmation and a request for representations. She also provides the written independence statement, with a summary of audit and non-audit services. The partner records the meeting date and attendees, and keeps the note on the file.
Need help with governance reporting?
If your audit committee or board wants a clearer pack for auditor meetings, with scope, risks and a checklist of findings, TaxClue's compliance advisory team can help you design it. Boards can also use our compliance advisory service to prepare questions for the auditor.
Key takeaways
- Identify the right governance contacts, and the full board where only a sub-group is addressed.
- Communicate the auditor's responsibilities, planned scope and timing, and significant findings.
- Listed entities receive a written independence statement.
- Communication is two-way and timely, and is evaluated for adequacy.
- Keep a record of oral communications and copies of written ones.
Read next
- SA 265: communicating deficiencies in internal control
- SA 701: key audit matters
- SA 240, part 1: fraud risk assessment
- Section 177 and the audit committee
Disclaimer: Based on the Standards on Auditing and quality standards issued by the Institute of Chartered Accountants of India, in the versions named in the article, and ICAI's announcement of 31 March 2026 on SQM 1 and SQM 2, as consulted on 3 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org. This article is general information, not legal advice; check the official text before acting.