The Australian Auditing Standards (ASAs) apply to the audit of a group financial report (a group audit). This ASA deals with special considerations that apply to a group audit, including in those circumstances when component auditors are involved. The requirements and guidance in this ASA refer to, or expand on, the application of other relevant ASAs to a group audit, in particular ASA 220,^[1] ASA 230,^[2] ASA 300,^[3] ASA 315,^[4] and ASA 330.^[5] (Ref: Para. A1–A2)

 A group financial report includes the financial information of more than one entity or business unit through a consolidation process, as described in paragraph 14(k). The term consolidation process as used in this ASA refers not only to the preparation of a consolidated financial report in accordance with the applicable financial reporting framework, but also to the presentation of a combined financial report, and to the aggregation of the financial information of entities or business units such as branches or divisions. (Ref: Para. A3–A5, A27)

As explained in ASA 220,^[6] this ASA, adapted as necessary in the circumstances, may also be useful in an audit of a financial report other than a group audit when the engagement team includes individuals from another firm. For example, this ASA may be useful when involving such an individual to attend a physical inventory count, inspect property, plant and equipment, or perform audit procedures at a shared service centre at a remote location.

Groups and Components

A group may be organised in various ways. For example, a group may be organised by legal or other entities (e.g., a parent and one or more subsidiaries, joint ventures, or investments accounted for by the equity method). Alternatively, the group may be organised by geography, by other economic units (including branches or divisions), or by functions or business activities. In this ASA, these different forms of organisation are collectively referred to as “entities or business units.” (Ref: Para. A6)

The group auditor determines an appropriate approach to planning and performing audit procedures to respond to the assessed risks of material misstatement of the group financial report. For this purpose, the group auditor uses professional judgement in determining the components at which audit work will be performed. This determination is based on the group auditor’s understanding of the group and its environment, and other factors such as the ability to perform audit procedures centrally, the presence of shared service centres, or the existence of common information systems and internal control. (Ref: Para. A7–A9)

Involvement of Component Auditors

ASA 220 ^[7] requires the engagement partner to determine that sufficient and appropriate resources to perform the engagement are assigned or made available to the engagement team in a timely manner. In a group audit, such resources may include component auditors. Therefore, this ASA requires the group auditor to determine the nature, timing and extent of involvement of component auditors.

The group auditor may involve component auditors to provide information, or to perform audit work, to fulfill the requirements of this ASA. Component auditors may have greater experience with, and a more in-depth knowledge of, the components and their environments (including laws and regulations, business practices, language, and culture) than the group auditor. Accordingly, component auditors can be, and often are, involved in all phases of the group audit. (Ref: Para. A10–A11)

Audit risk is a function of the risks of material misstatement and detection risk.^[8] Detection risk in a group audit includes the risk that a component auditor may not detect a misstatement in the financial information of a component that could cause a material misstatement of the group financial report, and that the group auditor may not detect this misstatement. Accordingly, this ASA requires sufficient and appropriate involvement by the group engagement partner or group auditor, as applicable, in the work of component auditors and emphasises the importance of two-way communication between the group auditor and component auditors. In addition, this ASA explains the matters that the group auditor takes into account when determining the nature, timing and extent of the direction and supervision of component auditors and the review of their work. (Ref: Para. A12–A13)

Professional Scepticism

In accordance with ASA 200,^[9] the engagement team is required to plan and perform the group audit with professional scepticism and to exercise professional judgement. The appropriate exercise of professional scepticism may be demonstrated through the actions and communications of the engagement team, including emphasising the importance of each engagement team member exercising professional scepticism throughout the group audit. Such actions and communications may include specific steps to mitigate impediments that may impair the appropriate exercise of professional scepticism. (Ref: Para. A14–A18)

Scalability

This ASA is intended for all group audits, regardless of size or complexity. However, the requirements of this ASA are intended to be applied in the context of the nature and circumstances of each group audit. For example, when a group audit is carried out entirely by the group auditor, some requirements in this ASA are not relevant because they are conditional on the involvement of component auditors. This may be the case when the group auditor is able to perform audit procedures centrally or is able to perform procedures at the components without involving component auditors. The guidance in paragraphs A119 and A120 also may be helpful in applying this ASA in these circumstances.

Responsibilities of the Group Engagement Partner and Group Auditor

The group engagement partner remains ultimately responsible, and therefore accountable, for compliance with the requirements of this ASA. The term “the group engagement partner shall take responsibility for…” or “the group auditor shall take responsibility for…” is used for those requirements when the group engagement partner or group auditor, respectively, is permitted to assign the design or performance of procedures, tasks or actions to other appropriately skilled or suitably experienced members of the engagement team, including component auditors. For other requirements, this ASA expressly intends that the requirement or responsibility be fulfilled by the group engagement partner or group auditor, as applicable, and the group engagement partner or group auditor may obtain information from the firm or other members of the engagement team. (Ref: Para. A29)

[Deleted by the AUASB. Refer Aus 0.3]