Thursday, June 11, 2020
MODERNISATION OF THE GROUP AUDITS STANDARD IN SUPPORT OF AUDIT QUALITY
The Australian Auditing and Assurance Standards Board (AUASB) seeks public comment by 4 September 2020 on the AUASB Consultation Paper on the IAASB’s proposed revision to Group Audits, ED ISA 600 Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) and conforming and consequential amendments.
Proposed ISA 600 (Revised) deals with special considerations for audits of group financial statements (group audits). Group audits are often more complex and challenging than single-entity audits because a group may have many entities or business units across multiple jurisdictions, and component auditors may be involved. However, because of the scoping into ED-ISA 600 based on when the auditor has been engaged to audit group financial statements as defined, you may be surprised to find that this standard applies to some of the smaller, less complex groups comprised of only a small number of entities or business units.
The proposed standard introduces an enhanced risk-based approach to planning and performing a group audit. This approach appropriately focuses the group engagement team’s attention and work effort on identifying and assessing the risks of material misstatement of the group financial statements and designing and performing further audit procedures to respond to those assessed risks. The proposed standard recognises that component auditors can be, and often are, involved in all phases of a group audit. In these circumstances, the proposed standard highlights the importance of the group engagement team’s involvement in the component auditor’s work.
The more significant changes proposed in ED ISA 600 are:
(a) Clarifies the scope of the standard including introducing new definitions of component and group financial statements.
(b) Clarifies and reinforced that all International Auditing Standards need to be applied in a group audit engagement through establishing stronger linkages to the other International Auditing Standards, in particular to proposed ISA 220, ISA 315 (Revised 2019) and ISA 330.
(c) Reinforces the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors.
(d) Aids scalability by including separate sections throughout to highlight the requirements and application material for circumstances when component auditors are involved.
(e) Clarifies how to address restrictions on access to people and information in a group audit, including restrictions on access to component management, those charged with governance of the component, component auditors, or information at the components.
(f) Emphasises the importance of professional scepticism.
(g) Enhances special considerations in other areas of a group audit, including materiality and documentation.
The AUASB’s Consultation Paper on ED ISA 600 Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) and conforming and consequential amendments provides an overview of how the AUASB is requesting feedback from Australian stakeholders on the proposed changes. The Consultation Paper is open for a period of 80-days closing 4 September 2020. The AUASB invites all stakeholders to comment on the Consultation Paper via the AUASB website.
The AUASB along with the NZAuASB is hosting an educative webinar presented by Mr Len Jui, who is an IAASB Member, Chair of the ISA 600 Task Force, KPMG Audit Partner and a member of CPA Australia’s External Reporting Centre of Excellence. This webinar is being arranged exclusively for the AUASB and NZAuASB. The webinar will be followed by remote consultative roundtables which will be advertised in due course on the AUASB website, click [here] to register for the webinar.