Transcription

Special Considerations --- Audits of Group Financial Statements677AU-C Section 600Special Considerations — Audits of GroupFinancial Statements (Including the Work ofComponent Auditors)Source: SAS No. 122; SAS No. 127; SAS No. 128; SAS No. 130; SASNo. 134; SAS No. 135; SAS No. 137; SAS No. 138.See section 9600 for interpretations of this section.Effective for audits of group financial statements for periods endingon or after December 15, 2012, unless otherwise indicated.IntroductionScope of This Section.01 Generally accepted auditing standards (GAAS) apply to group audits.This section addresses special considerations that apply to group audits, in particular those that involve component auditors.02 An auditor may find this section, adapted as necessary in the circumstances, useful when that auditor involves other auditors in the audit of financial statements that are not group financial statements. For example, anauditor may involve another auditor to observe the inventory count or inspectphysical fixed assets at a remote location.03 A component auditor may be required by law or regulation or may havebeen engaged by component management for another reason to express an audit opinion on the financial statements of a component. The requirements ofthis section apply, nonetheless, regardless of whether the group engagementpartner decides to make reference to the component auditor in the auditor's report on the group financial statements or to assume responsibility for the workof component auditors.04 Governmental entities frequently prepare group financial statements.The AICPA Audit and Accounting Guide State and Local Governments providesguidance to assist auditors in auditing and reporting on those financial statements in accordance with GAAS, including the requirements of this section.05 In accordance with section 220, Quality Control for an EngagementConducted in Accordance With Generally Accepted Auditing Standards, thegroup engagement partner is required to be satisfied that those performing thegroup audit engagement, including component auditors, collectively possessthe appropriate competence and capabilities.1 The group engagement partneralso is responsible for the direction, supervision, and performance of the groupaudit engagement. In this section, requirements to be undertaken by the groupengagement partner are addressed to the group engagement partner. When thegroup engagement team may assist the group engagement partner in fulfilling1 Paragraph .16 of section 220, Quality Control for an Engagement Conducted in Accordance WithGenerally Accepted Auditing Standards. 2020, AICPAAU-C §600.05

678Using the Work of Othersa requirement, the requirement is addressed to the group engagement team.When it may be appropriate in the circumstances for the firm to fulfill a requirement, the requirement is addressed to the auditor of the group financialstatements.06 The requirements of section 220 apply regardless of whether the groupengagement team or a component auditor performs the work on the financialinformation of a component. This section assists the group engagement partner to meet the requirements of section 220 when component auditors performwork on the financial information of components.07 Audit risk is a function of the risk of material misstatement of the financial statements and the risk that the auditor will not detect such misstatements.2 In a group audit, detection risk includes the risk that a componentauditor may not detect a misstatement in the financial information of a component that could cause a material misstatement of the group financial statements and the risk that the group engagement team may not detect this misstatement. This section explains the matters that the group engagement teamconsiders when determining the nature, timing, and extent of its involvementin the risk assessment procedures and further audit procedures performed bythe component auditors on the financial information of the components. Thepurpose of this involvement is to obtain sufficient appropriate audit evidenceon which to base the audit opinion on the group financial statements.08 The group engagement partner is responsible for deciding, individuallyfor each component, to either assume responsibility for, and thus be required to be involved in,the work of a component auditor, insofar as that work relates tothe expression of an opinion on the group financial statements, or not assume responsibility for, and accordingly make reference to,the audit of a component auditor in the auditor's report on thegroup financial statements.The requirements in paragraphs .51–.65 are applicable only when the auditorof the group financial statements is assuming responsibility for the work ofcomponent auditors. All other requirements in this section apply to all auditsof group financial statements.Effective Date.09 This section is effective for audits of group financial statements forperiods ending on or after December 15, 2012.Objectives.10 The objectives of the auditor are to determine whether to act as theauditor of the group financial statements and, if so, toa.b.c.determine whether to make reference to the audit of a componentauditor in the auditor's report on the group financial statements;communicate clearly with component auditors; andobtain sufficient appropriate audit evidence regarding the financial information of the components and the consolidation process2 Paragraph .A36 of section 200, Overall Objectives of the Independent Auditor and the Conductof an Audit in Accordance With Generally Accepted Auditing Standards.AU-C §600.06 2020, AICPA

Special Considerations --- Audits of Group Financial Statements679to express an opinion about whether the group financial statements are prepared, in all material respects, in accordance withthe applicable financial reporting framework.Definitions.11 For purposes of GAAS, the following terms have the meanings attributed as follows:Component. An entity or business activity for which group or component management prepares financial information that is required by the applicable financial reporting framework to be included in the group financial statements. (Ref: par. .A1–.A5)Component auditor. An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part ofthe group engagement partner's firm, a network firm of the groupengagement partner's firm, or another firm. (Ref: par. .A9–.A11)Component management. Management responsible for preparingthe financial information of a component.Component materiality. The materiality for a component determined by the group engagement team for the purposes of thegroup audit.Group. All the components whose financial information is includedin the group financial statements. A group always has more thanone component.Group audit. The audit of group financial statements.Group audit opinion. The audit opinion on the group financialstatements.Group engagement partner. The partner or other person in thefirm3 who is responsible for the group audit engagement and itsperformance and for the auditor's report on the group financialstatements that is issued on behalf of the firm. When joint auditors conduct the group audit, the joint engagement partners andtheir engagement teams collectively constitute the group engagement partner and the group engagement team. This section doesnot, however, address the relationship between joint auditors orthe work that one joint auditor performs in relation to the workof the other joint auditor.Group engagement team. Partners, including the group engagement partner, and staff who establish the overall group auditstrategy, communicate with component auditors, perform workon the consolidation process, and evaluate the conclusions drawnfrom the audit evidence as the basis for forming an opinion on thegroup financial statements.Group financial statements. Financial statements that includethe financial information of more than one component. The termgroup financial statements also refers to combined financial statements aggregating the financial information prepared by components that are under common control.3Group engagement partner and firm refer to their governmental equivalents when relevant. 2020, AICPAAU-C §600.11

680Using the Work of OthersGroup management. Management responsible for the preparationand fair presentation of the group financial statements.Group-wide controls. Controls designed, implemented, and maintained by group management over group financial reporting.Significant component. A component identified by the group engagement team (i) that is of individual financial significance tothe group, or (ii) that, due to its specific nature or circumstances,is likely to include significant risks of material misstatement ofthe group financial statements. (Ref: par. .A6–.A8).12 Reference to the applicable financial reporting framework means thefinancial reporting framework that applies to the group financial statements.Reference to the consolidation process includes the following:a.b.The recognition, measurement, presentation, and disclosure ofthe financial information of the components in the group financial statements by way of inclusion, consolidation, proportionateconsolidation, or the equity or cost methods of accounting (Ref:par. .A12)The aggregation in combined financial statements of the financialinformation of components that are under common controlRequirementsResponsibility.13 In accordance with section 220, the group engagement partner is responsible for (1) the direction, supervision, and performance of the group auditengagement in compliance with professional standards, applicable regulatoryand legal requirements, and the firm's policies and procedures; and (2) determining whether the auditor's report that is issued is appropriate in the circumstances.4 (Ref: par. .A13–.A14)Acceptance and Continuance.14 The group engagement partner should determine whether sufficientappropriate audit evidence can reasonably be expected to be obtained regarding the consolidation process and the financial information of the componentson which to base the group audit opinion. For this purpose, the group engagement team should obtain an understanding of the group, its components, andtheir environments that is sufficient to identify components that are likely tobe significant components. (Ref: par. .A15–.A17).15 The group engagement partner should evaluate whether the groupengagement team will be able to obtain sufficient appropriate audit evidencethrough the group engagement team's work or use of the work of componentauditors (that is, through assuming responsibility for the work of componentauditors or through making reference to the audit of a component auditor inthe auditor's report), to act as the auditor of the group financial statements andreport as such on the group financial statements. (Ref: par. .A18–.A21).16 In some circumstances, the group engagement partner may concludethat it will not be possible, due to restrictions imposed by group management,for the group engagement team to obtain sufficient appropriate audit evidence4Paragraph .17 of section 220.AU-C §600.12 2020, AICPA

Special Considerations --- Audits of Group Financial Statements681through the group engagement team's work or use of the work of componentauditors, and the possible effect of this inability, will result in a disclaimer ofopinion on the group financial statements.5 In such circumstances, the auditorof the group financial statements should in the case of a new engagement, not accept the engagement, or,in the case of a continuing engagement, withdraw from the engagement when withdrawal is possible under applicable law orregulation, or when the entity is required by law or regulation to have an audit, having performed the audit of the group financial statementsto the extent possible, disclaim an opinion on the group financialstatements. (Ref: par. .A22–.A27)Terms of Engagement.17 The auditor of the group financial statements is required, in accordance with section 210, Terms of Engagement, to agree upon the terms of thegroup audit engagement.6 (Ref: par. .A28–.A29)Overall Audit Strategy and Audit Plan.18 The group engagement team should establish an overall group auditstrategy and should develop a group audit plan. In developing the group auditplan, the group engagement team should assess the extent to which the groupengagement team will use the work of component auditors and whether theauditor's report on the group financial statements will make reference to theaudit of a component auditor, as discussed in paragraphs .24–.30.19 The group engagement partner should review and approve the overallgroup audit strategy and group audit plan. (Ref: par. .A30)Understanding the Group, Its Components, andTheir Environments.20 The auditor is required to identify and assess the risks of materialmisstatement through obtaining an understanding of the entity and its environment.7 The group engagement team shoulda.enhance its understanding of the group, its components, and theirenvironments, including group-wide controls, obtained during theacceptance or continuance stage.b.obtain an understanding of the consolidation process, includingthe instructions issued by group management to components.(Ref: par. .A31–.A37).21 The group engagement team should obtain an understanding that issufficient toa.confirm or revise its initial identification of components that arelikely to be significant.5 Paragraphs .11–.14 of section 705, Modifications to the Opinion in the Independent Auditor'sReport.6 Paragraph .09 of section 210, Terms of Engagement.7 See section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. 2020, AICPAAU-C §600.21

682Using the Work of Othersb.assess the risks of material misstatement of the group financialstatem