ISA 600 (Revised) DEALS with Special Considerations that APPLY to group audits in particular those that involve component auditors.
Table of Contents
- ISA 600 (Revised) – Introduction
- ISA 600 – Objectives
- ISA 600 – Definitions
- ISA 600 – Requirements
- 1. Responsibility
- 2. Acceptance and Continuance
- 3. Overall Audit Strategy and Audit Plan
- 4. Understanding the Group, Its Components and Their Environments
- 5. Understanding the Component Auditor
- 6. Materiality
- 7. Responding to Assessed Risks
- 8. Consolidation Process
- 9. Subsequent Events
- 10. Communication with the Component Auditor
- 11. Evaluating the Sufficiency and Appropriateness of Audit Evidence Obtained
- 12. Communication with Group Management and Those Charged with Governance of the Group
- 13. Documentation
- Synopsis
ISA 600 (Revised) – Introduction
1. Scope of this ISA
ISA 600 deals with Special Considerations that apply to ‘group audits‘.
2. Effective Date
This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2009.
ISA 600 – Objectives
| The Objectives of the Auditor are: |
|---|
| (a) To DETERMINE whether to act as the ‘Auditor’ of the Group Financial Statements; AND |
| (b) If acting as the auditor; – To COMMUNICATE clearly with the component auditors about the scope and timing of their work; AND – To OBTAIN sufficient appropriate audit evidence regarding the financial information of components and the ‘Consolidation Process’. |
ISA 600 – Definitions
1. Component
An entity or business activity for which group or component Management PREPARES financial information.
2. Group
All the components whose financial information is INCLUDED in the group financial statements. A Group always has MORE than one component.
3. Component Materiality
The ‘Materiality‘ for a component DETERMINED by the group engagement team.
4. Group Audit
The AUDIT of group financial statements.
5. Group Financial Statements
‘Financial Statements’ that INCLUDE the financial information of More than one component.
6. 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.
7. Group Engagement Team
Partners, including the group engagement partner and staff who ESTABLISH the overall group audit strategy, COMMUNICATE with component auditors, PERFORM work on the consolidation process and EVALUATE the conclusions drawn from the audit evidence.
8. Significant Component
A Component identified by the group engagement team (i) that is of INDIVIDUAL FINANCIAL SIGNIFICANCE to the group, or (ii) is likely to include SIGNIFICANT RISKS of MATERIAL MISSTATEMENT of the group financial statements.
ISA 600 – Requirements
1. Responsibility
The ‘Group Engagement Partner’ is RESPONSIBLE for the direction, supervision and performance of the group audit engagement.
2. Acceptance and Continuance
In applying ISA 220, the group engagement partner shall DETERMINE whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the ‘Consolidation Process’ and the ‘Financial Information’ of the components.
2.1 Terms of Engagement
The ‘Group Engagement Partner’ shall AGREE on the terms of the group audit engagement in accordance with ISA 210.
3. Overall Audit Strategy and Audit Plan
The group engagement team shall ESTABLISH an overall ‘group audit strategy’ and shall DEVELOP a ‘group audit plan‘ in accordance with ISA 300.
The ‘Group Engagement Partner’ shall REVIEW the overall group audit strategy and group audit plan.
4. Understanding the Group, Its Components and Their Environments
The ‘Auditor’ is Required to IDENTIFY and ASSESS the risks of Material Misstatement through obtaining an understanding of the entity and its environment.
5. Understanding the Component Auditor
If the group engagement team plans to request a component auditor to perform work on the financial information of a component, the group engagement team shall OBTAIN an Understanding of the following:
- Whether the component auditor understands and will comply with the ETHICAL REQUIREMENTS and in particular, is INDEPENDENT;
- The component auditor’s PROFESSIONAL COMPETENCE;
- Whether the group engagement team will be able to be involved in the work of the component auditor; AND
- Whether the component auditor operates in a REGULATORY ENVIRONMENT that actively oversees auditors.
6. Materiality
| The Group Engagement Team Shall DETERMINE the Following: |
|---|
| (a) Materiality for the group financial statements as a whole. |
| (b) The Materiality level or levels to be applied to those particular classes of transactions, account balances and disclosures. |
| (c) ‘Component Materiality’ for those components where component auditors will perform an audit or a review for purposes of the group audit. |
| (d) The threshold above which requirements cannot be regarded as CLEARLY TRIVIAL to the group financial statements. |
7. Responding to Assessed Risks
The ‘Auditor’ is required to DESIGN and IMPLEMENT appropriate responses to address the assessed risks of Material Misstatement of the financial statements.
7.1 Determining the Type of Work to be Performed on the Financial Information of Components
7.1.1 Significant Components
For a Component that is significant due to its INDIVIDUAL FINANCIAL SIGNIFICANCE, the group engagement team or component auditor shall PERFORM an audit of the financial information using ‘Component Materiality‘.
For a Component that is significant because it is likely to include SIGNIFICANT RISKS of MATERIAL MISSTATEMENT, the group engagement team or component auditor shall PERFORM one or More of the following:
- An audit of the financial information using ‘Component Materiality’
- An audit of one or More account balances, classes of transactions or disclosures; AND/OR
- Specified audit procedures.
7.1.2 Components that Are Not Significant Components
For Components that are NOT significant, the group engagement team shall PERFORM ‘analytical procedures’ at group level.
7.2 Involvement in the Work Performed by Component Auditors
7.2.1 Significant Components—Risk Assessment
The ‘Group Engagement Team’ shall be INVOLVED in the component auditor’s Risk Assessment, the involvement at a Minimum shall INCLUDE:
| (a) Discussing the component’s business activities that are SIGNIFICANT to the group; |
| (b) Discussing the SUSCEPTIBILITY of the component to Material Misstatement of the financial information due to fraud or error; AND |
| (c) Reviewing the component auditor’s documentation of identified SIGNIFICANT RISKS of Material Misstatement of the ‘Group Financial Statements’. |
7.2.2 Identified Significant Risks of Material Misstatement of the Group Financial Statements—Further Audit Procedures
The ‘Group Engagement Team’ shall EVALUATE the appropriateness of further audit procedures.
Based on the Understanding of the ‘Component Auditor’, the group engagement team shall DETERMINE whether it is necessary to be involved in further audit procedures.
8. Consolidation Process
In accordance with ISA 600 the ‘Group Engagement Team’ OBTAINS an understanding of ‘Group-Wide Controls‘ and the ‘Consolidation Process‘, INCLUDING the instructions issued by group Management to Components.
The ‘Group Engagement Team’ shall DESIGN and PERFORM further audit procedures on the Consolidation Process to respond to the assessed ‘Risks of Material Misstatement’ of the ‘Group Financial Statements’. This shall include EVALUATING whether all components have been included.
The ‘Group Engagement Team’ shall EVALUATE the appropriateness, completeness and accuracy of ‘Consolidation Adjustments‘ and ‘Re-Classifications‘ and shall EVALUATE whether any fraud risk factors or indicators of possible Management bias exist.
If the financial information of a component has not been prepared in accordance with the Same Accounting Policies applied to the ‘Group Financial Statements’, the group engagement team shall EVALUATE whether the financial information of that component has been appropriately adjusted for purposes of preparing and presenting the group financial statements.
The ‘Group Engagement Team’ shall DETERMINE whether the financial information identified in the ‘Component Auditor’s Communication‘ is the financial information that is incorporated in the group financial statements.
If the Group Financial Statements Include the financial statements of a component with a ‘Financial Reporting Period-End‘ that differs from that of the group, the ‘Group Engagement Team’ shall EVALUATE whether appropriate Adjustments have been Made to those financial statements in accordance with the applicable financial reporting framework.
9. Subsequent Events
The ‘Group Engagement Team’ shall PERFORM procedures designed to ‘Identify Events’ at those components that occur between the dates of the financial information of the components and the date of the auditor’s report on the group financial statements and that May Require adjustment to or disclosure in the ‘group financial statements‘.
10. Communication with the Component Auditor
The ‘Group Engagement Team’ shall COMMUNICATE its Requirements to the Component Auditor on a timely basis. This communication shall SET OUT the work to be performed, the use to be Made of that work and the form and content of the component auditor’s communication with the group engagement team.
The ‘Group Engagement Team’ shall REQUEST the component auditor to communicate Matters relevant to the group engagement team’s conclusion with regard to the group audit.
11. Evaluating the Sufficiency and Appropriateness of Audit Evidence Obtained
11.1 Evaluating the Component Auditor’s Communication and Adequacy of their Work
The ‘Group Engagement Team’ shall EVALUATE the component auditor’s communication.
The ‘Group Engagement Team’ shall:
| (a) DISCUSS Significant Matters arising from that evaluation with the Component Auditor, Component Management or Group Management as appropriate; AND |
| (b) DETERMINE whether it is necessary to review other relevant parts of the component auditor’s audit documentation. |
11.2 Sufficiency and Appropriateness of Audit Evidence
The ‘Auditor’ is required to OBTAIN sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby ENABLE the auditor to draw reasonable conclusions on which to base the auditor’s opinion.
12. Communication with Group Management and Those Charged with Governance of the Group
12.1 Communication with Group Management
The ‘Group Engagement Team’ shall DETERMINE which identified deficiencies in internal control to communicate to those charged with governance and group Management in accordance with ISA 265.
12.2 Communication with Those Charged with Governance of the Group
The ‘Group Engagement Team’ shall COMMUNICATE the following Matters with those charged with governance of the group, in addition to those Required by ISA 260 (Revised) and other ISAs:
| (a) An overview of the type of work to be performed on the financial information of components. |
| (b) An overview of the nature of the group engagement team’s planned involvement in the work to be performed by component auditors on the financial information of significant components. |
| (c) Instances where the group engagement team’s evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor’s work. |
| (d) Any limitations on the group audit. |
| (e) Fraud or suspected fraud involving Group Management, Component Management, Employees who have significant roles in group-wide controls. |
13. Documentation
The ‘Group Engagement Team’ shall INCLUDE in the audit documentation the following Matters:
- An analysis of components, indicating those that are Significant and the type of work performed on the financial information;
- The nature, timing and extent of the group engagement team’s involvement in the work performed by the component auditors on Significant components; AND
- Written communications between the group engagement team and the component auditors.
Synopsis
The International Standard on Auditing ISA 600 ‘Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)’ DEALS with special considerations that apply to group audits in particular those that involve component auditors.
[600-699] Using the Work of Others
Chartered Accountant – ICAP
Bachelor of Accounting (Honours) – AeU, Malaysia