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Hello Sir, I still have some doubt for this auditing standard, hope that you can clarify that for me,Thank you.
[The minimum extent of involvement of the group auditor involvement in the component’s auditor risk assessment included]:
-Discussing with the component auditor or component management the component’s business activities which are significant to the group?
1. Why the group auditor can’t understand the significance of business activities of components company by assessing the operating segmental information of the component or from the group management account?
-Reviewing the component auditor’s documentation if identified significant risks of material misstatement of the group financial statements. Such documentation may take the form of a memorandum which reflects the component auditor’s conclusion with regard to the identified significant risks.
2. What conclusion will be made by the component auditors toward the identified significant risk? will it include auditor’s response?
-Evaluating the component auditor’s communication on matters relevant to the group audit and discuss any significant matters arising from that evaluation with the component auditor,component management or group management as appropriate
3. The group auditor need to tell/discuss with the component auditor about the evaluation of component auditor, management and group management? what is the reason/rationale behind it?
1. The auditor could do other things as you say (if it has segmental information, for example) but isa 600 states that for significant components, risk assessment must, at a minimum, include this discussion. It is not necessary to deliberate why ISA 600 states this (para 30(a)) – it just does.
2. Para 30(c) states that the group auditor must review the documentation in which the component auditor(s) have drawn their conclusion on what they have as identified significant risks. Para 31 states that the group auditor must evaluate the appropriateness of the further audit procedures (i.e. responses to assessed risk).
3. Seems to be para 42 (a). I think you are getting far to bogged down in minute detail of the ISA which isn’t going to be examined. It’s simply saying that if, for example, the group auditor has problems with communications from a component auditor (e.g. a component auditor fails to respond to a request for information), the group auditor needs to take that up with management – either component management or group management, as appropriate.
Sir, thank you for your reply, however, the whole paragraph is from the past year question (March/June 2018) and it’s part of the examiner answer included , and I just need some clarification for understanding and learning from that.
for 2, what type of conclusion is refers to?can give some example?
Thank you.
It would be helpful if you were to reference the source of your queries – then I don’t have to go in search of what it is that you are looking at.
All it means is that the group auditor should review the component auditor’s documentation (e.g. a planning memo) in which it identifies significant risks – any audit risk you like would be an example – revenue recognition/purchases cut-off/contingent liabilities …
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