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Dear tutor
what is the criteria for a significant component?
ISA 600 states a benchmark 15%, so I assume that would be total asset of component is over or around 15% of the group total asset, we can say it is a significant component.But it also states, this is a matter of professional judgement, rather than a set of definitive rules. So what other criteria for us to decide whether it’s a significant component in a group audit?
Many thanks
Component materiality is covered in Chapter 21 of the notes – 14.8% would be a matter of matter of professional judgment – i.e. you wouldn’t ignore significance entirely simply because it is less that 15%. Significance might also be considered in terms of risk of misstatement – so two subsids could be the same size but one have higher risks of misstatement due to its business or location or anything really.
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