Audit Of Groups

Question 1

The auditor of the group financial statements should obtain sufficient appropriate audit evidence on which to base the audit opinion of the group. The group auditor should do the following

Answer 1

1. Determine whether to act as auditor of the group financial statements
2. Communicate with component auditors of the group financial statements about the scope and timing of their work on the financial statements of components
3. Obtain sufficient appropriate audit evidence about the financial information of the components and the consolidation process to express an opinion on the group financial statements

Question 2

What are the responsibilities of the engagement partner in group audit?

Answer 2

1. Decision on acceptance and continuance of the audit of the group
2. The direction, supervision and performance of the group audit engagement
3. The group auditors report

Question 3

The engagement partner should, in considering whether to accept or continue as auditor of the group, consider the following

Answer 3

1. Whether sufficient, appropriate audit evidence can be obtained on the consolidation process and the financial information of components
2. Where components are audited by component auditors, whether the engagement team will be involved in the audit of components so as to obtain sufficient appropriate audit evidence

Question 4

The auditor should perform procedures (risk assessment procedures) to obtain an understanding of the the group, its components and their environment by understanding the following

Answer 4

1. The group, its components and their environments
2. Group wide control
3. The consolidation process
4. The component auditor involved

Question 5

The group engagement team must establish an overall group audit strategy for the group audit as a whole, this will include the following

Answer 5

1. The overall audit approach to be followed regarding the audit of the group and its components
2. Considerations regarding the administration of the audit
3. As well as the
   - group materiality level
   - identifying significant and non significant component selected to be audited

Question 6

How will the group engagement team determine the materiality for group financial statements as a whole?

Answer 6

1. Establishing materiality for the group financial statement
2. If required by specific circumstances, a lower materiality for the particular classes of transactions, account balances or disclosure

Question 7

What is component materiality

Answer 7

The materiality level established by the engagement team for individual components for group audit process

Question 8

What is the threshold level?

Answer 8

The level above which material misstatements (unadjusted audit difference) should be reported to the group auditor. All unadjusted audit differences from the components will be considered together to assess the cumulative affect thereof on the group financial statements

Question 9

What are some risk indicators for misstatement at the group level?

Answer 9

1. Complex group structures
2. Weak corporate governance structure
3. Non effective group controls
4. Business activities of components in foreign jurisdiction
5. Business activities of components involving high risks
6. Related party transactions

Question 10

How should the auditor respond to the risk at group level?

Answer 10

The auditor should assess the risk and then respond thereto. This will affect the following:

• materiality level for the group component
• the identification and audit of significant components and non significant components
• the nature, timing and extent of procedures on the consolidation process

Question 11

What will be considered as significant components in a group?

Answer 11

1. Their individual financial, significance to the group

2. The significant risk of material misstatement of those components to the group financial statements

Question 12

What should the group engagement team perform if a significant component in a group is identified?

Answer 12

1. An audit of the financial statement of the component using component materiality
2. An audit of one or more account balances or transactions of component
3. Specific procedures to address the significant risk identified

Question 13

How will a non significant components in a group be audited?

Answer 13

Through analytical review

Question 14

How will an auditor test the consolidation process?

Answer 14

1. Testing the operating effectiveness of the group wide controls over the consolidation process
2. Further audit procedures to respond to identified risks
3. Testing consolidation workings and adjustments
4. Testing the accounting treatment and adjustments

Question 15

What must be documented in a group audit?

Answer 15

1. An analyses of components identified as significant and the work performed thereon
2. The engagement team’s involvement in work performed by component auditors
3. Written communication between the engagement team and the component auditors

Question 16

The principle auditors should advise the other auditors of aspects such as the following

Answer 16

1. The independence requirements regarding both the entity and the component
2. The use that is to be made of other auditors work
3. The accounting, auditing and reporting requirements that apply
4. The component materiality
5. Identified significant risks for the group financial statement, relevant to the components
6. The information to be communicated to the group auditors
7. The coordination and planning of work
8. The timetable for completion of the work

Question 17

The procedures to assess the other auditors work should entail the following

Answer 17

1. Direct discussion with the other auditors of the procedure performed
2. Review of questionnaire and checklists prepared by the other auditors
3. Review of the other auditors working papers
4. Review of written summaries prepared by the other auditors
5. Discussions with and enquiries of the directors or management of components
6. Analytical procedures on the financial statements of components

Question 18

What procedures should be performed on the findings of auditors?

Answer 18

1. Discuss with other auditors and management

2. Test the accounting records of the component, if necessary.

Question 19

The principle auditor should not refer to the other auditors in an unqualified audit report

Answer 19

True