group auditor and component auditor

The group auditor is responsible for the audit of the consolidated financial statements for the group and the audit of the parent’s financial statements. The component auditor plans and performs the audit of the component’s (e.g. subsidiary’s) financial statements in order to form an opinion on those financial statements. If the component auditor planned to perform tests of controls but found controls to be ineffective, they would have revert to a substantive approach in order to form their opinion.

If a component is significant to the group financial statement, the group auditor must obtain sufficient evidence that account balances/class or transactions are not materially misstated. The group auditor may may perform or request the component auditor to perform specific procedures. An example in ISA 600 is if there is a significant risk of material misstatement in the group financial statements due to inventory obsolescence (the component holds a large volume of potentially obsolete inventory). Although ISA 600 says that the group auditor may perform specified audit procedures on the valuation of inventory at the component, clearly the component auditor should in any case be auditing it.

If, on the other hand, properties are carried at depreciated cost in the subsidiary’s books but the group policy is to revalue them, they would have to be revalued for the group accounts. There would be no reason for the component auditor to audit this unless requested to do so by the group auditor.