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CFAP 06 AARS by Muhammad Asif, FCA > ISA 600 Group Audit + Joint Audit > Flashcards

ISA 600 Group Audit + Joint Audit Flashcards

1
Q

What are the two major parts in which ISA 600 is sub-divided?

[ISA 600]

A
  1. Auditor’s Responsibilities when he audits group financial statements.
  2. Auditor’s Responsibilities when he involves other auditor
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2
Q

Give some examples of Components.

[ISA 600]

A
  • Subsidiaries, Associates, Joint-Ventures,
  • Branches.
  • Products, services or geographical locations.
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3
Q

What is group auditor’s responsibility at time of acceptance/continuance?

[ISA 600]

A

To determine whether he will be able to obtain evidence on:

  1. financial information of all components.
  2. Consolidation process.
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4
Q

What matters should be considered by group auditor before making Acceptance and Continuance Decision?

[ISA 600]

A

Group Engagement Partner shall determine (by obtaining understanding of group) whether sufficient appropriate audit evidence can be obtained on:

  • financial information of all components (including components for which component auditor is appointed), and
  • consolidation process.
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5
Q

How understanding of Group can be obtained at Acceptance Stage?

[ISA 600]

A

Initial Audit:

Information/Communication from Group management, Previous group engagement team, Component management, Component auditor.

Recurring Audit:

  • Changes in group structure, business activities, group-wide controls.
  • Changes in management and TCWG.
  • Changes in AFRF.
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6
Q

Can auditor obtain evidence if access to information at component is restricted?

[ISA 600]

A
  1. Is component is significant, evidence cannot be obtained.
  2. If component is not significant, evidence can be obtained if group engagement team has components’ F/S, Audit Report, information kept by group management.
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7
Q

Which additional matters should be agreed in Engagement Letter in case of Group Audit?

[ISA 700]

A
  1. Permission of Group Management to perform work on financial information of all component, and
  2. Unrestricted access to financial information of component, and its management.
  3. Permission to communicate with (or engage) component auditors, if needed.
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8
Q

Why Understanding of Group is necessary?

[ISA 600]

A
  • To make Acceptance and Continuance Decision.
  • To identify significant components,
  • To assess Risks in Group F/S.
  • To decide type of work to be performed on each component.
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9
Q

When obtaining understanding of a group, which aspects should be covered by group auditor?

[ISA 600]

A
  • Group Structure (i.e. which components are significant and which are not).
  • Group-wide controls.
  • Consolidation Process.
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10
Q

When would you classify a component as Significant?

[ISA 600]

A

A component can be significant on:

(a) financial basis significance to the group (e.g. exceeding 15% of related benchmark), or
(b) risk basis (e.g. component dealing in foreign exchange trading).

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11
Q

How many materiality levels are required to be determined by Group Auditor?

[ISA 600]

A
  • Materiality for Group F/S as whole (and Qualitative materiality for particular areas)
  • Clearly Trivial Level for Group.
  • Component Materiality (if component will be audited or reviewed).
  • Performance Materiality of components may be determined by component auditor.*
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12
Q

Can materiality of a component be greater than material for group F/S?

[ISA 600]

A

No.

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13
Q

Does single materiality amount is used for all components?

[ISA 600]

A

No. Different components will have different materiality levels.

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14
Q

What type of work is performed on a component which is significant on financial basis?

[ISA 600]

A

Audit of component using component materiality.

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15
Q

What type of work is performed on a component which is significant on risk basis?

[ISA 600]

A
  • Audit of component using component materiality or
  • Audit of one or more account balances or classes of transactions which are likely to include risk, or
  • Specific audit procedures relating to significant risk.
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16
Q

What type of work is performed on a component which are not significant?

[ISA 600]

A

Analytical procedures at group level. If no risks are identified as a result of analytical procedures, there is no need to perform any further procedure.

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17
Q

What should group auditor do if sufficient appropriate evidence cannot be obtained by performing procedures on significant and non-significant components? (e.g. when almost all components are non-significant)

[ISA 600]

A

Select not significant components, and perform one or more of following:

  • audit of component using component materiality,
  • review of component using component materiality,
  • audit of one or more account balances or classes of transactions,
  • specific audit procedures.
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18
Q

Which selecting non-significant components for audit or review or other audit procedures, what factors should be considered by group auditor?

[ISA 600]

A
  • Whether component is comparatively significant.
  • Whether the component has been newly formed or acquired.
  • Whether significant changes have taken place in component.
  • Whether abnormal fluctuations are identified by analytical procedures.
  • Whether the internal audit function has performed work at the component.
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19
Q

Which procedures should be performed by group auditor to verify Consolidation Process?

[ISA 600]

A
  1. Understand consolidation process, and Read instructions by group management to components.
  2. Obtain understanding of group-wide controls, and test.
  3. Ensure all components are included.
  4. Ensure correct information of component is included in consolidation.
  5. Check Consolidation Adjustments, particularly for different accounting policies, and different year-end.
20
Q

Which procedures should be performed by group auditor to verify Consolidation Adjustments?

[ISA 600]

A

Auditor should evaluate:

  • Whether adjustments are correctly calculated, processed and authorized.
  • Whether adjustments are properly supported and documented.
  • Whether adjustments appropriately reflect underlying events and transactions.
  • Checking proper adjustment of unrealized gain, intra-group transactions and balances.
21
Q

What is Group auditor’s responsibility for subsequent events, if a component is audited?

[ISA 600]

A

Group Engagement Team or Component Auditor shall perform procedures to identify subsequent events upto the date of group auditor’s report.

22
Q

What is Group auditor’s responsibility for subsequent events, if a component is not audited?

[ISA 600]

A

Group Engagement Team shall request Component Auditor to notify if they become aware of any subsequent event upto the date of group auditor’s report.

23
Q

If audit report of a significant component is modified, audit report on group F/S will always be modified. True or False?

[ISA 600]

A

False. Report on group F/S will depend on impact of issues on Group F/S.

24
Q

If audit reports of all components are unmodified, audit report on group F/S will also be unmodified. True or False?

[ISA 600]

A

False. Due to differences in financial reporting requirements of components and group, or due to disclosure requirements applicable to group, report on Group F/S may still be modified.

25
Q

Which matters are required to be communicated by Group Auditor to Group Management?

[ISA 600]

A
  • Deficiencies in internal control at components, or in group-wide controls.
  • Fraud or suspected fraud
  • Matters significant to the F/S of component, for whom component management may be unaware.
26
Q

Which matters are required to be communicated by Group Auditor to TCWG of Group?

[ISA 600]

A
  • Overview of type of work to be performed on Component.
  • Overview of planned involvement in the work of component auditor.
  • Concerns about quality of component auditor’s work.
  • Restrictions on scope of audit.
  • Fraud or suspected frauds involving group management or component management.
27
Q

Which specific matters are required to be documented by Group Auditor?

[ISA 600]

A
  • Analysis of components (significant or not),
  • Type of work performed on components.
  • Nature, timing and extent of involvement in the work of component auditor, and component auditor’s documents and conclusions.
  • Communication between group engagement team and component auditor.
28
Q

If group auditor plans to request component auditor to work on a component, he has to obtain understanding of Component Auditor about which matters?

[ISA 600]

A
  1. ethical requirements (including independence).
  2. Professional competence
  3. Involved in the work of the component auditor.
  4. regulatory environment that actively oversees auditor.
29
Q

What to do if there are concerns about Independence of Component auditor?

[ISA 600]

A
  • Concerns can NOT be overcome, even by being involved in the work or by performing additional procedures.
  • Component auditor will not be engaged.
30
Q

What to do if there are concerns about Competence (or Involvement in work) of Component auditor?

[ISA 600]

A

If concerns are serious:

  • Concerns can NOT be overcome, even by being involved in the work or by performing additional procedures.
  • Component auditor will not be engaged.

If concerns are less than serious:

  • Concerns can be overcome by being involved in the work or by performing additional procedures.
  • Component auditor will be engaged.
31
Q

What to do if there are concerns about Regulatory Environment of Component auditor?

[ISA 600]

A
  • Concerns can be overcome by being involved in the work or by performing additional procedures.
  • Component auditor will be engaged.
32
Q

What procedures should be performed by group auditor to obtain understanding of component auditor?

[ISA 600]

A

In the First Year:

  1. Discuss with component auditor
  2. Request the component auditor to:
    1. Complete the questionnaire
    2. Confirm the matters in writing
  3. Discuss with knowledgeable colleagues and/or third parties
  4. Obtain confirmation from professional bodies
  5. Evaluate the results of QCR of component auditor

In Subsequent years:

  1. Use previous experience.
  2. Request the component auditor to confirm any changes
33
Q

What kind of involvement in component auditor’s work is required if he is engaged to conduct audit of a component?

[ISA 600]

A

Group Auditor shall be involved in component’s risk assessment, and shall:

  • discuss business activities of component which are significant.
  • Discussing susceptibility of component to misstatement.
  • Reviewing component auditor’s documentation of identified risks.
34
Q

What kind of involvement in component auditor’s work is required if significant Risk is identified at a component?

[ISA 600]

A

Group engagement team shall:

  • Evaluate appropriateness of planned further audit procedures.
  • Determine whether to involve in performance of further audit procedures.
35
Q

Forms of Involvement in the work of Component Auditor?

[ISA 600]

A
  • Performing risk assessment procedures, and further audit procedures (alongwith component auditor)
  • Meetings with component auditor/component management
  • Reviewing audit strategy and audit plan of component.
  • Reviewing other relevant documentation.
36
Q

Which matters are required to be communicated by group auditor to component auditor?

[ISA 600]

A
  • Ethical requirements (specially independence).
  • Work to be performed by component auditor and use of that work.
  • Form, and content of component auditor’s communication with group auditor.
  • Request to cooperate with group auditor.
  • Component materiality, and clearly trivial level.
  • Identified risk of material misstatement relevant to component auditor.
  • List of related parties.
37
Q

Which matters are required to be communicated by component auditor to group auditor?

[ISA 600]

A
  • Compliance with ethical requirements
  • Compliance with instructions of group partner
  • List of uncorrected misstatements.
  • List of significant risks and related parties identified by component auditor.
  • Significant deficiencies in internal controls
  • Instances of non-compliance with laws and regulations
  • Frauds or suspected frauds.
  • Component auditor’s overall findings and conclusions.
  • Any other matters relevant to group audit.
38
Q

Audit of component is required to be conducted by Statute. What matters should be considered by group auditor to use work of component auditor as Evidence for group audit?

[ISA 600]

A
  • Obtain Understanding of Component Auditor.
  • Consider differences in financial reporting framework, auditing and other standards, and Reporting timetable.
  • Determine whether Overall materiality and performance materiality are appropriate.
  • Involve in the work of component auditor.
39
Q

If a significant matter is identified by group auditor for which component management is unaware, what group auditor should do?

[ISA 600]

A
  1. Request group management to inform the matter to component management.
  2. If refused, team shall discuss with TCWG of group.
  3. If still unresolved, team shall consider considering legal and confidentiality requirements , and may advise component auditor not to issue report.

Such matters may include Plan for disposal of assets, Legal agreements, Litigations, Subsequent events.

40
Q

What is the responsibility of a joint auditor?

[ISA 600]

A

A joint auditor is jointly responsible for his own work, and also for work of other joint auditor.

41
Q

What should joint auditor do if other joint auditor is not complying with Ethical or Quality Control requirements?

[ISA 600]

A

Joint auditor should:

  • Perform all significant work himself, or
  • Refuse/withdraw from the engagement.
42
Q

What matters must be agreed between Joint-Auditors?

[ISA 600]

A
  • Communication regarding Ethics and Quality Control System.
  • Division of work.
  • Mechanism for review of each other’s working papers.
  • Mechanism for dispute resolution.
43
Q

How a joint audit should be planned by auditors?

[ISA 600]

A
  • Joint auditors should jointly establish Overall Audit Strategy, and Risk Assessment.
  • Allocation of work:
    • should be agreed in writing.
    • should cover all significant components of F/S.
    • preferably, should be communicated to entity.
  • Some critical areas may be covered by all joint auditors.
  • If a joint auditor does not place reliance on work of other joint auditor, he must document the reason and should perform the work himself.
44
Q

How a joint auditor must review the work of other joint auditor?

[ISA 600]

A
  • At planning stage, Joint auditors should agree on mechanism to review work of each other.
  • Review must be completed on/before date of joint-auditors’ report.
  • If a joint auditor concludes that work of other joint-auditor is insufficient, he must:
    • Request other joint auditor to perform additional work, or
    • Perform additional work himself if other joint auditor disagrees.
45
Q

How difference of opinion among joint auditors should be resolved?

[ISA 600]

A
  • Normally, a single audit report is signed by all joint auditors.
  • First, differences of opinion should be discussed between joint engagement partners.
  • If not resolved, matter should be referred to the nominated partners from respective firms.
  • If still not resolved, matter should be discussed with management/TCWG, and
    • Each joint auditor must issue separate audit report.
    • Audit report shall and include Other Matter paragraph giving reference to other joint auditor’s report and reason of difference.
    • Both reports shall be attached to financial statements, and shall be considered auditors’ report.

CFAP 06 AARS by Muhammad Asif, FCA (5 decks)

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