ACCA AAA · Chapter 21
Group audits
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Group structure, planning and consolidation
One group opinion risk-based work across components
ISA 600 (Revised)
- Audit of group financial statements using a risk-based approach
- Work locations and extent follow assessed group RoMM
Components
- Entity, business unit, function or activity selected for audit
- Component auditor performs group-audit work as team member
- Component statutory audit may not meet group needs
Group auditor
- Partner manages quality, strategy, risks and evidence
- Directs, supervises and reviews component work
- Sole responsibility for group audit opinion
Classify by substance
- Control: subsidiary, consolidate under IFRS 10
- Significant influence: associate, equity method under IAS 28
- Joint control/net asset rights: joint venture, equity method
- Neither: financial asset under IFRS 9
Audit the judgement
- Examine voting rights, contracts and board representation
- Less than 50% ownership may still give control
Consolidation process
- Includes acquisitions, equity accounting and aggregation
- Adjust policies, eliminate balances and reclassify items
- Group financial statements are not necessarily consolidated
Understand
- Structure, acquisitions/disposals and consolidation process
- Common controls, central functions and group policy monitoring
Where to perform work
- Follow risks, changes, unusual transactions and prior deficiencies
- Consider evidence restrictions and access to people/data
Across jurisdictions
- Local law, data rules, reporting and ethical requirements
- Currency, language, time zone and political/economic risk
- Explain effect on audit work, not merely overseas location
Set thresholds
- Group financial statement and group performance materiality
- Component performance materiality for component work
- Misstatement reporting threshold for component auditors
Aggregation risk
- Undetected/uncorrected misstatements may combine to exceed group materiality
- Component performance materiality below group performance materiality
Joint audit
- Two or more firms jointly responsible and expressing one opinion
- May add resources/local expertise but requires coordination
- Address methods, coverage, cost and judgement differences
Group-specific risks and component work
Challenge and conclude evidence for the group as a whole
Acquisitions/disposals
- Establish date control was gained or lost
- Include actual results for correct period
- Assess derecognition, retained interest and disposal gain/loss
Eliminations and alignment
- Reconcile intra-group balances and goods/cash in transit
- Remove intra-group trading and unrealised profit
- Adjust depreciation after intra-group asset transfers
- Align component accounting policies
Different dates and currencies
- Reporting date gap no more than three months if impracticable
- Adjust significant intervening events and apply consistently
- Test functional currency, rates and translation differences
IFRS 3 acquisition accounting
- Check acquirer, date, consideration and identifiable net assets
- Evaluate NCI, acquisition costs and disclosures
Goodwill
- = Consideration plus NCI less fair value of net assets
- Test fair values, intangible assets and contingent liabilities
- Recalculate goodwill and assess annual impairment
Consideration
- Deferred: present value; unwind discount as finance cost
- Contingent: fair value, then account by classification
- Test forecasts, probabilities, discount rates and contract terms
Before involvement
- Evaluate independence, competence, resources and access
- Ensure direction, supervision, review and involvement possible
Two-way communication
- Send risks, work, materiality, policies and deadlines
- Receive findings, revised risks, misstatements and fraud/NOCLAR
- Discuss bias, related parties, deficiencies and restrictions
Scale involvement
- More direct work for higher risk or judgement
- Review significant conclusions and relevant documentation
Group auditor reviews
- Did requested work address group risks and policies?
- Are judgements, uncorrected misstatements and evidence sound?
- Completion memo alone does not establish adequate evidence
Follow up findings
- New risk: request or design responsive procedures
- Higher component materiality: extend/repeat relevant work
- Policy difference: recalculate alignment adjustment
- Evidence gap: perform work directly or alternatives
Final conclusion
- Assess sufficient appropriate group audit evidence
- Do not refer to component auditor unless law requires
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