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GROUP AUDITS AND TRANSNATIONAL AUDITS (Audit of groups - ISA 600…
GROUP AUDITS AND
TRANSNATIONAL AUDITS
Audit of groups - ISA 600
Responsibilities
The group auditor takes sole responsibility for the group audit opinion
Only a matter which is material in a group context will affect the group audit opinion.
Acceptance and continuance
Obtaining an understanding of the group, its components and their enviroments
Possible sources of information
Information provided by group management
Communication with group management
Communication with the previous group engagement team, component manager, or component auditors
Other matters to consider
The group structure
Component's business activities including the industry and regulatory, economic and political environments
The use of service organisations
A description of group-wide controls
The complexity of the consolidation process
Whether component auditors will perform work on the financial information of any of the components
Whether the group engagement team will have unrestricted access to TCWG of the group/component/etc.
Planning and risk assessment
Significant components
A component identified by the group engagement team: (a) that is of individual significance to the group, or (b), that, due to its specific nature or circumstances, is likely to include significant RoMM of the group FSs
Significant component can be identified by using a benchmark (asset, liabilities, cash flows, etc.) If the component benchmark exceed 15% of the related group figure, then the auditor may judge that the component is a significant component
If a component is financially significant to the group financial statements then the group engagement team or a component auditor will perform a full audit based on the component materiality level.
If a component is significant due to its nature, the group auditors will require one of the following:
A full audit using component materiality
An audit of specified account balances related to identified significant risks
Specified audit procedures relating to identified significant risks
Components that are not significant components will be subject to analytical procedures at a group level - a full audit is not required
Understanding the component auditor
Whether the component auditor is independent and understands and will comply with the ethical requirements that are relevant to the group audit
The component auditor's professional competence
Whether the group engagement team will be involved in the work of the component auditor to the extent that it is necessary to obtain sufficient appropriate audit evidence
Whether the component auditor operates in a regulatory environement that actively oversees auditors
Materiality
The group auditor is responsible for setting the materiality level for the group financial statements as a whole. Materiality levels should also be set for components which are individually significant. These should be set at a lower level than the materiality level of the group as a whole.
Involvement in the work of a component auditor
The basis rule:
Where the component is significant, the group auditor must be involved in the component auditor's work
The group auditor may perform the following procedures:
Meeting with the component management or the component auditors to obtain an understanding of the component and its environment
Reviewing the component auditor's overall audit strategy and audit plan
Performing risk assessment procedures to identify and assess RoMM at the component level. These may be performed with the component auditor or by the group auditor.
The consolidation: problems and procedures
Audir procedures
Step 1: Compare the audited financial statements of each subsidiary/associate with the consolidation schedules to ensure that figures have been transposed correctly and that all components have been included
Step 2: Review the adjustments made on consolidation to ensure that they are appropriate and comparable with the previous year.
Step 3: For business combinations determine:
Whether the combination has been appropriately treated as an acquisition
The appropriateness of the date used as the date of combination
The treatment of the results of investments acquired during the year
FV of acquired assets and liabilities is reasonable
Goodwill has been calculated correctly and reviewed annually for indicators of impairment
Step 4: For disposals
Agree the date used as the date for disposal to sales documentation
Review management accounts to ascertain whether the results of the investment have been included up to the date of disposal, and whether figures used are reasonable.
Step 5: Consider whether previous treatment of existing subsidiaries or associates is still correct
Step 6: Verify the arithmetical accuracy of the consolidation workings by recalculating them
Step 7: Review the consolidated financial statements for compliance with the legislation, accounting standards and other relevant regulations
Step 8: Review the consolidated financial statements to confirm that they give a true and fair view in the circumstances
Joint audits
A joint audit is one where two or more auditors are responsible for an audit engagement and jointly produce an audit report to the client
Problems with joint audits
Both firms must sign the audit report and both are responsible for the whole audit whether or not they carried out a particular are of the audit programme. It follows that both firms will be jointly liable in the event of litigation
Transnational audits
Transnational audit
means an audit of financial statements which are or may be relied on outside the audited entity's home jurisdiction for purposes of significant lending, investment or regulatory decisions; this will include audits of all financial statements of companies with listed equity or debt and other public interest entities which attract public attention because of their size, products or services provided
Features of transnational audits
Regulation and oversight of auditors differs from country to country
Differences in auditing standards from country to country
Variability in audit quality in different countries