CS Group – Finance director leaving

I don’t think an FD leaving is either “per se” – you have to assess the situation that remains.

Consider the audit risk model … IR is the risk of misstatements arising “in the first place” i.e. without any consideration of controls … CR is the risk that the system of IC fails to prevent or detect and correct those misstatements …

The competence/experience of an FD – or whoever is the most senior person who prepares the financial statements on behalf of management – will be relevant to the assessment of IR. The greater the competence/experience, the lower IR.

There are two possibilities for CR:

1) The auditor assesses CR – i.e. tests the operating effectiveness of controls – in this case RoMM = IR x CR will be less than IR (meaning that CR is less than 100%, though ISA 315 doesn’t express it in these terms).

2) The auditor does not assess CR (i.e. does not test controls), the assessment of RoMM is the same as the assessment of IR (ISA 315 (Revised 2019)).

If the role of the FD is relevant to the auditor’s assessment of IC, and the FD leaves and is not replaced, the audit plan might move from 1) to 2). But if the control activities previously performed by the FD and taken on by a new FD (or other responsible officials), there’s no reason why the auditor might not still test those controls (so the FD’s leaving has no effect).