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Component auditor/joint audit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Component auditor/joint audit

  • This topic has 3 replies, 2 voices, and was last updated 6 months ago by Kim Smith.
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  • August 1, 2022 at 9:16 pm #662303
    Artem
    Member
    • Topics: 16
    • Replies: 10
    • ☆

    Dear Kim,

    Could you please explain the reason behind choosing joint audit arrangement against a component auditor?

    In case a parent acquiring a sub, the joint auditor (an auditor of a foreign sub) would have to express the opinion of the group financial statements.
    It would be more sense for a component auditor to express opinion on the financial information of the sub than to express opinion on the group financial statements despite the fact that the opinion is joint.

    August 2, 2022 at 7:30 am #662311
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6797
    • ☆☆☆☆☆

    First – I don’t think this is examinable.

    Component auditors are responsible for components and the group auditor is responsible for the audit of the parent and group’s financial statements (ISA 600).

    If a parent wanted or required a joint audit, it is likely that each of the joint auditors will be component auditor to various subsidiaries (and there could be other component auditors too).

    I cannot conceive a situation in which the acquisition of a subsidiary gives that company’s auditor any responsibility for the group audit.

    Joint audits cost a lot of money – there would have to be a very good reason or legal requirement for a parent company (and hence the group financial statements) to be subject to a joint audit.

    August 2, 2022 at 8:22 pm #662330
    Artem
    Member
    • Topics: 16
    • Replies: 10
    • ☆

    Dear Kim,

    Thank you for your reply.
    As an example I can refer to question RICK GROUP from March 2020.

    One of the requirements: (c) Using Exhibit 5, discuss whether it is appropriate for a joint audit to be performed on Michonne Co, commenting on the advantages and disadvantages of a joint audit arrangement. (6 marks)

    Rick Group is planning the acquisition of a new foreign subsidiary, Michonne Co.

    Then the audit committee has suggested a joint audit arrangement with Michonne Co’s current auditors (Lucille Associates).

    If I understand correctly, in this set up, Atlanta & Co (our audit firm) and Lucille Associates would have to express a joint opinion on the financial statements of the Rick Group?

    Wouldn’t it be more reasonable to approach Lucille Associates with referral instructions and request them to audit the financial information of Michonne Co for the purpose of the consolidated financial statement of the Group so Atlanta & Co could express their own opinion?

    August 3, 2022 at 7:18 am #662340
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6797
    • ☆☆☆☆☆

    This question asks what the advantages and disadvantages of a joint audit – in the “vehicle” of Michonne Co – a foreign subsidiary.

    You wrote “the joint auditor (an auditor of a foreign sub) would have to express the opinion of the group financial statements” – this is not true and the answer does not say this, but I can see how it might be misinterpreted. The para starting “The main disadvantage is that for the Group …” is still talking only about a joint audit of the subsidiary.

    But going back to the first line of your original question, you are quite right that it makes no sense to choose a joint audit of the subsidiary rather than apply ISA 600 to working with a component auditor (and it is this that I consider to be not examinable). If Atlanta & Co were joint auditor of Michonne, it would have to audit Michonne and report on its financial statements – but as it has no representation in Farland, the cost to Michonne (and hence the Group) would be prohibitive.

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