level: Audit of Group Financial Statements
Questions and Answers List
level questions: Audit of Group Financial Statements
| Question | Answer |
|---|---|
| In order to reduce the risk that the aggregate of undetected misstatements in the group financial statements of a nonissuer exceeds the materiality for the group financial statements as a whole, an auditor should establish a? | Component materiality that is lower than the materiality for the group financial statements |
| Effect of Reference to a Component Auditor on the Auditor's Report: How should the “Opinion” section refer to the component auditor's work if it is to be included in the Group Auditor's Report? | i. The “Opinion” section should refer to “In our opinion, based on our audit(s) and the report of the other auditors, …” The opinion section should include an additional paragraph that identifies the component(s) audited by other auditors and the relative magnitude of the financial statements involved. ii. The “Basis for Opinion,” “Management Responsibilities,” and “Auditor's Responsibilities” sections are unchanged by the reference to component auditors. |
| Determining Whether to Reference a Component Auditor in the Auditor's Report: Reference to the component auditor should not be made unless: (a) the component's financial statements are prepared using the same financial reporting framework used by the group; (b) the component auditor has performed an audit on the component's financial statements in accordance with GAAS (or PCAOB standards, if applicable); and (c) the component auditor has issued an audit report on the component's financial statements that is not restricted as to use. If the group engagement partner decides to assume responsibility for the component auditor's work, should a reference be made to the component auditor in the Group Audit Report? | No reference should be made to the component auditor in the auditor's report. |
| Relevant AICPA Guidance The relevant AICPA guidance is provided by AU 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors). The standard states that the auditor's objectives are to determine whether to act as the auditor of the group financial statements, and, if so, (1) to determine whether to make reference to the audit of the component auditor; (2) to communicate clearly with component auditors; and (3) to obtain sufficient appropriate audit evidence regarding the financial information of the components and the consolidation process to express an opinion on the group financial statements. | Definitions Component: An entity 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. 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 of the group engagement partner's firm, a network-affiliated firm, or another unrelated firm.) Group: All the components whose financial information is included in the group financial statements. A group always has more than one component. Group Financial Statements: Financial statements that include the financial information of more than one component. This term also refers to combined financial statements aggregating the financial information prepared by components that are under common control. 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 that (a) is of individual financial significance to the group; or (b) due to its specific nature, is likely to include significant risks of material misstatement of the group financial statements. |