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Grissom (6/10)(b)
This question is about factors to be considered in deciding reliance placed on the work of component auditor.In the answer, the point for professional competence :
As group auditor, Vegas&Co should check that Sidle&Co(component auditor):
-understand ISA. Chocland (country component auditor works in) audit regulations are not based on ISAs, so Vegas&Co must ensure that the work performed by Sidle&Co conforms to the requirement of ISAs
-Have sufficient resources and skills to perform the necessary work. Various complex accounting issues will be involved in preparing the group accounts, such as the measurement of fair values on consolidation. The group auditor must assess whether Sidle&Co has the resources and skills to do this.
-understand IFRSs. Chocland has not adopted IFRSs, and there is risk that Sidle&Co is not competent to audit Brass Co’s accounts after they have been adjusted to comply with IFRSs.My questions :
For the first point above, how if the component auditor’s country has their own auditing standard? They should follow ISA as the group ?For the second point, ‘various complex accounting issues will be involved in preparing group account’ isn’t it work of finance director at group level? Why component auditor should have the resources and skills to do this?
For the third point, Chocland does not adopt IFRS. Does Brass Co prepare account based on its country law or IFRS?
‘there is risk that Sidle & Co is not competent to audit Brass Co’ s account after they have adjusted to comply with IFRS’ Does Sidle&Co need to audit both FS prepared under own country law and IFRS for Brass Co?Thank you
1. For the audit of the single entity financial statements (on which they report) component auditors only have to follow the auditing standards relevant to the audit reporting requirements of the jurisdiction in which they operate. If the group auditor needs additional work performing on components – for any reason – either the group engagement team or the component auditor(s) on behalf of the group engagement teams will perform this.
2. I think “to do this” means “to perform the necessary work” (in the preceding sentence) not to “do” the accounting (although clearly they must understand the accounting in order to audit it). The original J10 published answer went on to explain “For example, the group audit team may instruct Sidle & Co to perform work necessary for the group audit, such as verification of related parties or fair value measurements. The firm (i.e. Sidle & Co) may not have previous experience in these matters”
3.If a scenario states that IFRS has not been adopted assume separate entity financial statements for companies in that jurisdiction are prepared according to local standards. Therefore, at some point, for the consolidated financial statements, adjustments will need to be made to bring all the line items in Brass Co’s financial statements in line with IFRS. Also, all IFRS disclosures relating to Brass Co that are material to the consolidated financial statements will need to be included. Responsibility for auditing these adjustments and disclosures rests with the group partner – the competence of Sidle & Co in this regard is only relevant if the questions suggests that the component auditor will be engaged to perform this work on behalf of the group auditor.
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