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Lark question on group consolidation audits

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Lark question on group consolidation audits

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by AvatarKim Smith.
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  • July 2, 2020 at 7:48 pm #575768
    Avatarwisecrack
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Good evening

    I was working on the Lark question on group consolidation audits and BPP wrote this in the answer.That it is possible for the group auditor may not find sufficient evidence on an issue raised in the audit of a component auditor who issued a qualified audit opinion by the component auditor and thus the compnent auditor would HAVE to redraft its audit report to show an unmodified opinion.

    So my questions are these…

    1. Can a group auditor make a component auditor change its audit opinion?
    2. If the component auditor believes that such a quaified opinion is necessary and refuses to change such opinion. Are there any repercussions to this?

    thanks

    David

    July 3, 2020 at 7:12 am #575790
    AvatarKim Smith
    Keymaster
    • Topics: 138
    • Replies: 8463
    • ☆☆☆☆☆

    I do not have a current edition revision kit and cannot find a past group audit question called Lark. There is a past question Nassau group which had a similar scenario – the component auditor expressed a qualified opinion in respect of material misstatement (a provision should have been recognised). What the answer to that said was:
    “Exuma is a subsidiary of Nassau and, by definition, is under the control of the parent. Therefore, Exuma’s management can be asked to adjust the financial statements to recognise a provision. If this happens, Jalousie & Co’s auditor’s report should be redrafted as unmodified and the group audit opinion will also be unmodified.
    “If Exuma’s financial statements are not amended, an adjustment could be made on consolidation of the group financial statements to include the provision. In this case, the opinion on Exuma’s financial statements would REMAIN QUALIFIED, but the group audit opinion would not be qualified as the matter causing the material misstatement has been rectified.”

    So the answer to your Q1 is NO – a parent controls a subsidiary (by definition) but a group auditor does not control a component auditor. The component auditor is independent and solely responsible for the opinion on the component’s financial statements. There is therefore no Q2.

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