o A practical guide to some of the more

challenging aspects of group audits

performed in accordance with ISA 600

o A group audit is audit of group financial

statements when they contain the financial
information of more than one company
Component Auditor
 An auditor who performs work on the financial information of a component
that will be used as audit evidence for the group audit.

Group Engagement Partner

 The partner or other person in the firm who is responsible for the group audit
engagement and its performance and for the auditor's report on the group
financial statements that is issued on behalf of the firm.

 Auditor responsible for the greater portion of financial statements.

Group Engagement Team

 Partners including the group engagement partner, and staff who establish the
overall group audit strategy.

Group Financial Statements

 Financial statements that include the financial information of more than one
component.
 The group auditor should establish that it is appropriate to
act as group auditor.

 The group auditor should gather sufficient and appropriate

evidence in order to reach an opinion on the consolidated
financial statements
 To report whether in their opinion the group accounts give a true and fair view

 Evaluate performance of other auditors and provide feedback for improvements

 Coordinate with General Auditor in reviewing and revising audit programs

 Work with audit teams to plan, prioritize and perform audit works to ensure timely
completions

 Build positive and professional working relationships with business teams

 Responsible to evaluate the direction, supervision, and performance of the
group audit engagement in compliance with professional standards,
applicable regulatory and legal requirements, and the firm's policies and
procedures

 Group auditors need to test the consolidation process. The extent of testing
should be based on the risk assessment. It includes a specific evaluation of
whether all components have been included in the consolidation

 Group auditors are required to evaluate the appropriateness, completeness

and accuracy of consolidation adjustments. This involves the identification of
any fraud risk factors and indicators of possible management bias.
 Gathering Evidence On The Components

 Planning and risk assessment

It is imperative that the group auditor has a good understanding of the
structure of the group, the significance of each component of the group

 Involvement in the work of component auditors

In a group, it is likely that some companies will be audited by a different
firm of auditors. A material misstatement in the financial statements of a
company could become a material misstatement in the financial
statements of the group.
 Auditing The Consolidation

 The consolidation process

The group auditor must plan the audit procedures to be performed on the
consolidation process. For some groups, the consolidation will be complex and is
likely to involve some areas of judgement, and so there is a high degree of audit
risk. Thorough planning will be essential to ensure that audit risk is minimised.
 Issuing The Group Audit Opinion

The group auditor issues an opinion on the

consolidated financial statements. This is done after a
through review of all evidence gathered in the first and
second stages.
Acceptance Of The Assignment
 The group engagement partner each year formally to assess whether it is appropriate to
act as group auditor. If at any point the group engagement partner concludes that they
lack the professional skills necessary to form a group audit opinion, they should resign.

 Extends this responsibility to require that the auditor relying on the third party’s work
has obtained their own understanding of the specialist area in question, or business of
each subsidiary or associate.

Group Audit Opinion

 The parent company of a group will normally publish its financial statements as an
individual company and the group financial statements in the same document, so, the
audit opinion will normally be expressed on ‘the financial statements of the company
and of the group

 ISA prohibits the group auditor from making any reference to the work of any other
experts or auditors
 Groups often have a number of subsidiaries that are either dormant or
immaterial. At a minimum, the group engagement team must develop
an understanding of each component of the group and review the
financial statements of each subsidiary.
 Discussing with the component auditor the susceptibility of the
company’s financial statements to material error or deliberate
misstatement
 Reviewing the component auditor’s documentation of identified
significant risks, and the conclusions reached on these risks
 Observing final clearance meetings between the component auditor
and the management of the company.
 Performance materiality is the figure below that any errors in the
financial statements may be considered trivial. The component
auditor will be required to communicate to the group auditor a
summary of all unadjusted errors in the consolidation package

 It is common in larger group audits for the financial statements to

be prepared using a consolidation package of information that is
sent to the parent company by each component company
 ISA 600 in its revised form contains extensive new requirements on the
communication between parent and component auditor. In addition to
practical matters such as materiality, the required format of the consolidation
package, deadlines and contact details, the group auditor must
communicate a number of matters at the planning to the component auditor,
including:
 Related party relationships known anywhere around the group
 Identified significant risks, whether due to error or fraud

Matters that the component auditor must communicate to the group auditor will
include:

 Any indications of management bias

 Any significant risks to the truth and fairness of the component financial
statements, work done on these risks and the conclusions reached
 All observed control weaknesses, flagging significant weaknesses
separately
 Any known events after the reporting date.
 At this stage of the audit is very similar regardless of the specific
company, so good marks can be obtained largely by memorising the
risks and responses below:

a. Principal risks arising in the consolidation process include errors or

omissions arising during transcription of figures from individual
financial statements to consolidation workings
b. Classification of components
c. Determination of fair values being used on acquisition
d. Arithmetical inaccuracy in the consolidation process
• The group audit opinion may be signed on some date on
or after the audit opinions on material components are
signed
Factors to be considered by principal auditor before
relying on work of component auditor
 If the principal auditor does not satisfy with the work done by component
auditor, principal will ignore report done by the component auditor

 If component auditor issued modified report, principal auditor will

consider the significance towards the whole group

 If component auditor is assign to audit foreign subsidiaries, the differences

language, cultural and standards need to take into consideration
 Group audits raise a variety of issues. The group structure can be
complex and the existence of numerous components within the group means that
there may be several firms of auditors involved. The group auditor must ensure
that the group audit is carefully planned and that communications with other
auditors are made early in the audit process. The group auditor needs to gather
two types of evidence. Evidence regarding individual components of the group
may be gathered using a joint audit arrangement, though this is not without
disadvantages. Evidence on the consolidation process must be thorough, and
planned with regard to numerous complex financial reporting standards.
FINAL SEMESTER NOVEMBER 2014
FINAL SEMESTER SEPTEMBER 2016