1. Introduction and effective date
On 7th April 2022, IAASB released International Standard 600 (Revised), Special considerations- Audit of Group financial statements (including using the work of component auditors, effective for audits of group financial statements for periods beginning on or after December 15, 2023.
The Revised Standard deals with special considerations that apply to a group audit, including when component auditors are involved. The standard includes new and revised requirements and application material that better aligns the standard with recently revised standards, such as International Standard on Quality Management 1 and International Standards on Auditing 220 (Revised) and ISA 315 (Revised 2019).
The new and revised requirements also strengthen the auditor’s responsibilities related to
- professional skepticism;
- planning and performing a group audit;
- two-way communications between the group auditor and component auditors; and
- documentation.
2.Significant changes
2.1 Risk based approach
The risk-based approach is a framework for planning and performing a group audit engagement. IAASB introduce the risk based approach for:
- A greater alignment with the requirements in ISA 315 (Revised 2019) and ISA 330,
- A greater focus on identifying and assessing the risks of material misstatement and performing further audit procedures in response to the assessed risks, and
- A greater focus on planning an appropriate approach to obtaining sufficient appropriate audit evidence (what, where and by whom).
2.2 Managing and Achieving Quality in a Group Audit
A 600 (Revised) clarifies how the requirements in ISA 220 (Revised) apply to manage and achieve audit quality in a group audit, including sufficient and appropriate resources to perform the engagement, and the direction and supervision of the engagement team and the review of its work.
2.3 Restrictions on Access to Information and People
ISA 600 (Revised) clarifies the various types of restrictions that may exist, such as restrictions on access to people and information (e.g., access to component management, those charged with governance of the component, component auditors, or information at the component) and component auditor audit documentation.
The revised standard also provides guidance on ways to overcome such restrictions.
2.4 Materiality Considerations
ISA 600 (Revised) clarifies how the concepts of materiality and aggregation risk apply in a group audit.
2.5 Clarifications on scope
The scope of ISA 600 (Revised) is clarified through the introductory paragraphs and definitions and related application material, including whether, and how, ISA 600 (Revised) applies to:
- Entities with branches and divisions
- Shared service centres
- Non-controlled entities
2.6 Linkage to other standards
ISA 600 (Revised) clarifies and reinforces that all ISAs need to be applied in a group audit engagement.
2.7 Documentation requirements
ISA 600 (Revised) includes enhanced documentation requirements and application material to emphasize the linkage to the requirements in ISA 230 and the documentation requirements in other relevant ISAs. The revised standard also clarifies what the group auditor may need to document in different situations, including when there are restrictions on access to component auditor audit documentation.
ISA 600 (Revised) also highlights the importance of the group auditor’s review of component auditor audit documentation. The review of component auditor audit documentation is directly related to, and influenced by, the group auditor’s direction and supervision of the component auditors and the review of their work throughout the group audit.
2.8 Reinforcement of the need for robust communication and intercaction
ISA 600 (Revised) strengthens and clarifies:
- The importance of two-way communications between the group auditor and component auditors.
- Various aspects of the group auditor’s interaction with component auditors, including communicating relevant ethical requirements, determining competence and capabilities of the component auditor, and determining the appropriate nature, timing and extent of involvement by the group auditor in the work of the component auditor
2.9 Emphasis of important of professional scepticism
The revised standard emphasizes the importance of exercising professional skepticism, including as part of the group auditor’s:
- Direction, supervision and review of the work of engagement team members, including component auditors; and
- Evaluation of whether sufficient appropriate audit evidence has been obtained (including by component auditors) to provide a basis for forming an opinion on the group financial statements.
2.10 Scalability
The revised standard introduces a principles-based approach that is adaptable to a wide variety of circumstances, and scalable for audits of groups of different complexity, for example by:
- Focusing on identifying, assessing and responding to the risks of material misstatement of the group financial statements; and
- Including separate sections throughout ISA 600 (Revised) to highlight the requirements and application material for circumstances when component auditors are involved.
Visit the following link for more information and resources about the revised standard.
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