4

GROUP AUDIT
 Learning Outcomes

At the end of this chapter, you should be able to:

 Explain the composition of a group of companies.
 Discuss the responsibilities of the principal auditor
and other auditors.
 Describe the role and function of a support letter.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 3
 Introduction

 ISA 600 states the objectives of an auditor performing a

group audit are:
(a) To determine whether to act as the auditor of the group
financial statements, and
(b) If they are acting as the auditor of the group financial
statements,
• to communicate clearly with component auditors
(i.e. other auditors) about the scope and timing of
their work on financial information related to
components and their findings; and

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 4
 Introduction (cont.)

• to obtain sufficient and appropriate audit

evidence regarding the financial information of
the components and the consolidation process
to express an opinion on whether the group
financial statements are prepared, in all
material respects, in accordance with the
applicable financial reporting framework.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 5
6

Introduction (cont.)

 Overall audit strategy must clearly set out the resources

required for specific audit areas; the use of experienced
team members for high risk areas or involvement of
experts on complex matters.
 Public accounting firms need to ensure that their audit
engagements are completed by auditors having the
proper degree of technical training and proficiency given
the circumstances of the clients.
 Factors that should be considered: engagement size &
complexity, level of risk, special technical expertise,
personnel availability and timing of the work to be
performed.
FUNDAMENTALS OF AUDITING All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 6
7

Specific Issues In Group Audit

(cont.)

 The following information regarding the professional

competence of the other auditors can be used by
principal auditors when performing their evaluation:
(a) Membership of professional organization;
(b) Membership or affiliation with another firm;
(c) Inquiries with other auditors, bankers etc. and
(d) Discussion with the other auditors.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 7
8

Specific Issues In Group Audit

(cont.)

 Principal auditor would advise the other auditor of:

(a) Independence requirements and obtaining written
representations of their compliance;
(b) The use of the auditor’s work and making sufficient
arrangements for the coordination of efforts at the initial
stages of the audit (such as matters requiring special
considerations, procedures for identification of
intercompany transactions that may require disclosure,
and timetable for completion of audit);
(c) Accounting, auditing and reporting requirements and
obtaining written representations of their compliance.
FUNDAMENTALS OF AUDITING All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 8
 Specific Issues In Group Audit
(cont.)

 Principal auditor should also document the

following in the audit working papers:
(a) Components whose FS was audited by other
auditors;
(b) Their significance to the FS of the entity as a
whole;
(c) Names of the other auditors, and
(d) Procedures performed and conclusions reached.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 9
1
0

Specific Issues In Group Audit

(cont.)

 ISA 600 defines:

– Principal auditor; the auditor with the responsibility for
reporting on the financial statements of an entity
when those FS include one or more components
audited by another auditor.
– Other auditor; an auditor, other than the principal
auditor with the responsibility for reporting on the FS
of a component which is included in the FS audited by
the principal auditor.
– Component; a division, branch, subsidiary, JV,
associated co.
FUNDAMENTALS OF AUDITING All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 10
1
1

Specific Issues In Group Audit

(cont.)

 The other auditors, knowing the context in which

the principal auditors will use their work, should
cooperate with the principal auditors.
 When the principal auditor concludes that the work
of the other auditors cannot be used and has not
been able to perform sufficient additional
procedures regarding the financial information of
the components audited by the other auditors, the
principal auditor is required to issue a qualified
opinion or a disclaimer (limitation in scope).

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 11
1
2

Specific Issues In Group Audit

(cont.)

 If the other auditors issue, or intend to issue a

modified auditor’s report, then the principal auditor
has the duty to consider whether the subject of the
modification is of significance, and if a modification
is of significance, and if a modification of the
principal auditor’s report is required.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 12
 Specific Issues In Group Audit
(cont.)

Related Party Transactions

 Entities such as associated companies, where the
parent company does not have overall control but
can exercise a significant right over their affairs,
together with other related parties such as
partnerships and joint ventures.
 In some circumstances, may give rise to higher
risks of material misstatement of the financial
statements than transactions with unrelated parties.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 13
 Specific Issues In Group Audit
(cont.)

 The objectives of the auditor are:

(a) To obtain sufficient and appropriate understanding of the
related party relationships and transactions to be able:
– to recognize fraud risk factors,
– to conclude, based on the audit evidence obtained,
whether the financial statements, achieve fair
presentation or are not misleading
(b) To obtain sufficient audit evidence about whether related
party relationships and transactions have been
appropriately identified, accounted for and disclosed in the
financial statements in accordance with the framework.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 14
 Specific Issues In Group Audit
(cont.)

 Directors are primarily responsible for the

disclosure of related party and ownership matters.
 Hence auditors must obtain written assurances
from them in a form of a Letter of representation.

FUNDAMENTALS OF AUDITING All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1– 15