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Can anyone explain to me the implication of the group audit report if one of its subsidiary has a qualified opinion.
Should the audit report for the group be qualified also or the group auditor can only refer to it in an emphasis of matter paragraph and issue an unmodified report.
Thank you
@funshine99 said:
It depends on the materiality level of the subsidiary. For example if the subsidiary is immaterial to the group meaning it’s turnover < 0.5% of group revenue, assets are less than 1% of group assets and profit is less than 5% of group profit then I guess you can issue an unmodified opinion on the group financial statements. If the subsidiary is material, you will have to use judgment. If the subsidiary is not audited by you then you can make the amendments yourselves and issue an unmodified opinion. If you are the auditor of the subsidiary then you will have to discuss the matter with the parent's management and then if the refuse to make the amendment you can take the qualification to the group financial statements. I'm not quite sure though you can post this question on ask the tutor.May I know that, will it consider break of confidentiality if we discuss the issue of subsidiary to holding company? Since the management may not allow us to inform current situation of subsidiary to holding company.
The qualification of a Sub will only impact on the group consolidated FS if the transaction that led to qualification of Sub FS is material to the group.
Even if sub is material to the group but the transaction/issue in question is not material then this will not impact group audit opinion as group auditor will only be concerned with material misstatements on group level.
Where issue resulting to qualification of Sub FS is material to group the below applies;
– Group auditor will need to discuss issue with parent Co and explain impact on group audit opinion.
– with permission of parent Co, auditor could arrange to meet directors/those charged with governance at Sub to discuss qualified opinion and try to convince them to make necessary amendments.
– group auditor could make the necessary amendments to the Sub FS themselves to eliminate misstatement before consolidation in which case group FS will not be qualified based on qualification of Sub FS.
– where parent Co refuses to allow Sub FS to be amended before consolidation, then group auditors will need to qualify group audit opinion with an ‘except for’ or adverse opinion depending on their assessability of materiality of issue to group FS.Basically materiality is considered on the basis of the transaction/issue in question to the group consolidated FS.
From my knowledge regards to confidentiality, group auditors have the right per engagement contract to all books & records of parent Co & all its Sub over which it has control & significant influence.
Therefore it’s the parent’s Co responsibility to ensure that group auditors have access to Sub books/records, therefore discussing Sub info with parent does not constitute a breach of confidentiality.
where group auditors are restricted access to Sub books/records and no resolution could be reach, then this will give rise to a limitation of scope which will lead to qualification under ‘except for’ or ‘disclaimer of opinion’ depending on level of materiality.
Thanks.
Osa
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