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Question 2c
My question is
1. if the component auditor’s work/opinion is deemed to be inappropriate by the group auditor, this means that the group auditor will need to carry out the appropriate audit work/opinion himself. Correct?
2. if the subsidiary’s singular FS contains material misstatements (thus a qualified opinion), but immaterial when the Group FS is consolidated, will this require a qualified opinion on the whole Group FS? Unless those charged with governance attempt to correct it? Or What if they don’t?
1. Effectively yes, though it depends on the circumstances. If the component auditor hasn’t done enough work, the group auditor may need to do more work (if possible). The group auditor could just disagree with the component auditor’s opinion and, for example, disregard it.
2. The group audit opinion cannot be modified on grounds that are not material from a group perspective – so the subsidiary’s financial statement may include a material misstatement (at S-level) but not affect the group auditor’s opinion (at P-level). Also, it may be possible for the matter giving rise to the modified opinion to be corrected in P’s consolidation . E.g. subsidiary’s FS do not include an impairment loss and the opinion is qualified on this basis – but management recognises the loss in the consolidated FS – so even if this is material to the group, a qualified opinion on the group FS can be avoided.
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