ISA 600 – Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditor)

Question 1

ISA 600: Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors):

Answer 1

The purpose of this ISA is to establish standards to be applied in situations where an auditor (hereinafter as Principal Auditor), reporting on the FS of an entity, uses the work of anotherAuditor(hereinafter as Another Auditor) w.r.t. the Financial Information of one or more branches/components included in Financial Statements.

Question 2

ISA 600: Key Definitions:

Answer 2

Principal auditor- Auditor of the client.

Another auditor- Auditor of component of client.

Component- Any branch, division, subsidiary, JV or associates, etc., whose financial information is used in the FS of the client.

Question 3

ISA 600: Scope and Applicability:

Answer 3

Scope
>This SA deals with the responsibility of the principal auditor concerning the use of work of other auditors.

Applicability
>This standard applies to material components, w.r.t. FS as a whole. Not applicable to Joint Auditors and Predecessor Auditors.

Question 4

ISA 600: Consideration by the principal auditor:

Answer 4

Consideration by the principal auditor
>The principal auditor is entitled to rely upon the work of another auditor, provided he exercised due skill and care, and there is nothing to doubt.
>The principal auditor should guide another auditor regarding:
>Use to be made of his report.
>Areas requiring special consideration.
>Time table for completion of the audit.
>Important accounting, auditing, and reporting requirement.
>The principal auditor should ask another auditor regarding any limitation on his work.
>The principal auditor may require another auditor to submit a questionnaire w.r.t. work performed by him.
>The principal auditor may require additional tests to be performed by:
>Another auditor; or
>Himself.
>In the case of foreign components, he should consider another auditor’s qualifications and knowledge.
>I”f there is a modification in another auditor’s report, the principal auditor should consider whether a modification in his report is required.”

Question 5

ISA 600: Co-ordination:

Answer 5

Co-ordination
>Another auditor should also share important and relevant information with the principal auditor and properly coordinate and communicate with him.

Question 6

ISA 600: Documentation by the principal auditor:

Answer 6

Documentation by the principal auditor
>Components audited by another auditor;
>Audit procedures adopted and evidence obtained;
>The conclusion that particular component is not material;
>Manner of dealing with modification in another auditor’s report,

Question 7

ISA 600: Reporting by Principal auditor:

Answer 7

Reporting by Principal auditor
>The Principal auditor should Qualify / Disclaim his audit report if he:
>Can’t use other auditor’s work procedures.
>Can’t be able to perform sufficient additional procedures.
>There should be a statement of the division of responsibility in the principal auditor’s audit report by showing the extent to which the FS of component audited by another auditor has been included in the FS of the entity.

Question 8

ISA 600: Key Terms 2: Indigolearn:

Answer 8

Reporting Entity:
> Client.
> Auditor of the Reporting Entity is required to give an opinion on Financial Statements as whole, which requires to use the work of Component’s Auditor.

Principal Auditor:
> Auditor of the Reporting Entity, who is required to give an opinion on Financial Statements as whole, which requires to use the work of Component’s Auditor.

Component:
> Is a Division/ Branch/ Subsidiary/ Joint Venture of the Group of Companies, whose portion of FS are included in the group FS.

Another Auditor:
Is the Auditor of the FS of the Component.

Question 9

ISA 600: Acceptability by Principal Auditor (4 issues to consider):

Answer 9

> The Materiality of the portion of the Financial Information.
The degree of knowledge regarding the business of the Component.
Risk of Material Misstatements of the Components audited by the Other Auditor.
Performance of Audit Procedures per this ISA 600 regarding the Components audited by the Other Auditor in which the Principal Auditor has significant participation.

Question 10

ISA 600: Procedure for Principal Auditor to use the work of Another Auditor:

Answer 10

> When suspicion exists, the Principal Auditor himself can examine the books of Accounts.
Consideration of Professional Competence of another Auditor if not member of ZICA or outside Zambia.
Inviting the other Auditor for discussion and give them advice:
* On area of Special Consideration.
* Disclose Inter-Company Transactions.
* Relevant Timeline for completion of Audit Report.
* Guide the other Auditor for Reporting Requirements and Compliance.
Working Paper cannot be asked to being the Property of the Other Auditor, but in order to understand work of the Another Auditor, Principal Auditor can:
* Request Another Auditor to fill the Questionnaire.
* Request Another Auditor to ensure completion of Checklist.
* Request on Audit Summary.
When Principal Auditor decides to consider the work of Another Auditor, he can accept the work as such or conduct a supplement Audit by himself/herself.

Question 11

ISA 600: Coordination between Principal Auditor and Another Auditor:

Answer 11

Proper coordination:
> Hence always a written communication is preferred between Principal Auditor and Another Auditor.
> On the contrary, it is the duty of Another Auditor to coordinate, and cooperate with the Principal Auditor.
> It is the Duty of Another Auditor to ensure that, Questionnaire and Checklist are complete.

Question 12

ISA 600: Reporting Requirements:

Answer 12

> It is not necessarily important that the Principal Auditor should also issue a Qualified Opinion if Another Auditor has modified his or her Opinion for the Component, since Materiality Level can be different for Reporting Entity and the Component.
The Principal Auditor has to understand the reason for the modification.
Principal Auditor should enquire, and after such Enquiry, if he/ she believes that it is not material for the Reporting Entity, then he or she can give a True and Fair View.
On the contrary Principal Auditor may decide not to agree with Another Auditor because there is No Sufficient and Appropriate Audit Evidence as regard to Component and may issue a Qualified or Disclaimer of Opinion.

Question 13

ISA 600: Responsibility of Principal Auditor and Another Auditor:

Answer 13

> Principal Auditor is solely responsible for work performed for the Reporting Entity.
However, the Principal Auditor will not be responsible for the work performed by Another Auditor that Principal Auditor used and relied upon.
Hence there is a clear division of responsibility and clear understanding as to difference of Opinion.

Question 14

ISA 600: Documentation:

Answer 14

> Components whose Financial Information is included in the Reporting Entity’s Financial Statements.
Auditor to each Component (Names)
Significant findings of Another Auditor which are not material.
The conclusions reached.

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