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In audit, an auditor who audits a company that belongs to a group may find itself to be the group auditor. The group auditor is usually the auditor that audits all the companies in the group or the auditor that does the majority of the audit work in the group. In cases where the group auditor does not audit all the companies, the group auditor will have to rely on the work of other auditors in forming an opinion of the group accounts.
Group Audit
The other auditors in the group are known as component auditors. Component means a division, branch, subsidiary, joint venture, associated or other entity whose financial information is included in the group accounts. The audit opinion for the group accounts which include the accounts audited by the component auditor falls on the group auditor. The group auditor is responsible for the opinion expressed on the group accounts
Group Audit
ISA 600 outlines the procedures that the group auditor needs to exercise when becoming the group auditor. However if the financial information by the other auditor is immaterial, this standard is not applicable.
Group Audit
Consolidated financial statements are prepared for the parent company and its subsidiaries. In cases where consolidated accounts need to be presented, the holding company is responsible for the preparation of the accounts. The auditor of the holding company is responsible for auditing the preparation of group accounts. In practice, the holding company auditor normally audits all or most of the subsidiaries within the group.
b. To obtain sufficient and appropriate audit evidence on the financial information audited by the component auditors
c. The partner in charge of the group auditor is responsible for direction, supervision and performance of the group audit work to ensure the group work was done in accordance to professional standards and applicable legal/regulatory requirements
In general, the auditors report on the group financial statements shall not refer to the component auditor, unless required by law or regulation to include such reference
Principal auditor that do not contribute sufficiently to the audit work for the companies in the group would have restricted access to information of the companies not audited by him and ultimately affect the sufficient and appropriate audit evidence need to form an opinion for the consolidated financial statements.
b. c.
In circumstances where the conditions under (a) to (d) cannot be met satisfactorily, the group auditor shall obtain sufficient and appropriate audit evidence directly without relying on the work of the component auditor.
Materiality
The group auditor is responsible for: a. Overall materiality level b. Identify particular classes of transactions, account balances or disclosures that needed lower materiality levels and determine the materiality levels for these transactions/accounts c. To ensure that aggregate misstatements for the component companies do not exceed the overall materiality level for the group d. Together with the component auditor determine the materiality level at the component level
Group may choose to be involve directly in the audit of component companies or request component auditor extend their audit work
Insignificant components Group auditor may perform analytical procedures at group level
Audit evidence
Evaluate adequacy of components auditors work: a. discuss significant matters and determine if it was necessary to further extend the audit procedures b. the extended work can either be done by group auditor or group auditor can request component auditors perform the extra work
Sufficiency and appropriateness of audit evidence: a. evaluate the effect of uncorrected misstatements in the component companies books b. identify instances where sufficient audit evidence could not be obtained
Documentation
The group auditors must include in their working papers: a. who are the components and their auditors b. the significance of the component auditors work to the group financial statements c. procedures performed and conclusions made about the components financial statements eg: document results of discussions with the other auditor or review the written summary of the components auditors audit procedures d. how they dealt with audit qualifications or adverse remarks found in the components auditors report
Reporting
When the group auditor could not use the work of component auditor and alternative procedures could not be performed resulting in insufficient audit evidence, the group should express a qualified or disclaimer opinion on the components financial information The group auditor is not responsible for the work entrusted to the component auditors except in circumstances which should have aroused his suspicion about the reliability of the work done by the component auditors
Goodwill on Consolidation
The group audit must review the goodwill apportionment of the subsidiaries into the consolidated financial statements. Goodwill valuation is in accordance to FRS. Compare investment in subsidiary to subsidiarys total of paidup shares and retained earnings