Basis for Granting Access – Group Audit

Under ASA 600 Special Considerations—Audits of a Group Financial Report (Including the Work of Component Auditors) (ASA 600) a group engagement partner is required to take overall responsibility for managing and achieving quality on the group audit.^[5] An auditor who performs audit work related to a component for the purposes of a group audit under ASA 600 is a component auditor and is part of the engagement team. The group engagement partner is required to have sufficient and appropriate involvement in the work of component auditors and takes responsibility for the nature, timing and extent of direction and supervision of component auditors and the review of their work. The group engagement partner of a controlling entity has a duty to form an opinion on various matters as may be required by laws or regulations, such as the Act (or other relevant statutory requirements) regarding the audit of a group financial report. There may also be circumstances when the auditor may be engaged to perform a non-statutory audit of a group financial report.

Under ASSA 5000 the engagement leader is required to take overall responsibility for managing and achieving quality on the audit of a group sustainability report. An auditor who performs audit work related to a component for the purposes of a group audit under ASSA 5000 is a component practitioner (herein, referred to as a component auditor) and is part of the engagement team. The engagement leader is required to have sufficient and appropriate involvement in the work of component auditors and takes responsibility for the nature, timing and extent of direction and supervision of component auditors and the review of their work. The engagement leader of a controlling entity has a duty to form an opinion on various matters as may be required by laws or regulations, such as the Act (or other relevant statutory requirements) regarding the audit of a group sustainability report.

If the group auditor requests access to the component auditor’s working papers, the component auditor considers whether it is necessary to establish and agree the conditions under which a group auditor is granted access to their working papers.

Relevant Factors to Consider – Corporations Act Engagement – Controlled Entities

For an audit or review of consolidated financial statements or all or part of a group sustainability report conducted under the Act, the auditor of a controlled entity must allow the group auditor of the controlling entity access to the controlled entity’s books and must give the auditor of the controlling entity any information, explanation or assistance required, for the purposes of the audit or review.^[6] The meaning attaching to these statutory requirements may not be precise, as there is no judicial or statutory authority about what is meant by the words “information, explanation or assistance”. The Act does not specify that the external auditor of the controlling entity has a statutory right to inspect the working papers of the auditor of the controlled entity. Nonetheless, the auditor of a controlled entity ordinarily endeavours to be open and frank with the auditor of the controlling entity and seeks to ensure compliance with any reasonable request by the auditor of the controlling entity to discharge their responsibilities under the Act.

When access to working papers is granted, for assurance engagements under ASA 600 or ASSA 5000; and the Act, the controlling entity cannot release or indemnify the auditor of the controlled entity under the Act’s relevant provisions.^[7] Where the auditor of the controlled entity gives assistance or information to the auditor of the controlling entity more than is required by the Act, the auditor of the controlled entity could seek a release and an indemnity from the auditor of the controlling entity (and arguably from the controlling entity itself). Any release or indemnity referred to in this paragraph may extend to liability that arises through access to audit working papers, other files maintained by the auditor and their audit staff.

Relevant Factors to Consider – Component Auditor

ASA 600 requires the group auditor to confirm with the component auditor that they will co-operate with the group auditor. Such agreement of co-operation may facilitate any reasonable request by the group auditor for access to component working papers.

For non-Corporations Act engagements, the auditor of a controlled entity is ordinarily expected to co-operate with reasonable requests from the group auditor for access to its working papers. Auditors should apply ASA 600 or ASSA 5000, as applicable, and may consider whether appropriate terms of access, including appropriate releases and/or indemnities are necessary.

Providing the Group Auditor Access to Audit Working Papers

The terms of engagement may include a release of client confidentiality in order for the component auditor to provide working papers to the group auditor. In the absence of a release of client confidentiality in the terms of engagement, the component auditor obtains a release of client confidentiality and may issue Example Letter C to the component auditor’s client.

Ordinarily, the group auditor will issue instructions to the component auditor. The instructions issued by the group auditor may set out the nature, timing and extent of audit working papers requested from the auditor of the controlled entity or component auditor. It is expected that communications between the group auditor and component auditor take place at appropriate times throughout the group audit.^[8]

The following guidance is also relevant regarding access to audit working papers by the group auditor:

a. When access to working papers is permitted during the assurance engagement, it may be prudent to inform the group auditor that the assurance work or accompanying working papers may not reflect significant events or matters which are material to the assurance engagement at the date when access is agreed. This communication ought to also contain the extent to which the component entity’s auditor has any obligation or responsibility to update the working papers or inform the reviewing auditor of information obtained subsequent to the date access is provided.

b. Requests by the group auditor for progress reports, advice on or information on the audit of the component entity are best made in writing, detailing specific matters on which a response is sought, and requesting the component auditor to respond in writing.

Notwithstanding some uncertainty about the audit working papers access obligations of an auditor of a controlled entity under the Act^[9], the auditor may determine whether it is necessary to establish and agree conditions under which the auditor of the controlling entity is granted access to their working papers. When the auditor of a controlled entity decides to establish and agree on conditions for providing access to audit working papers, Example Letter A in Appendix 1 may help identify an appropriate basis for making audit working papers available to the group auditor. If the auditor of a controlled entity determines it is necessary to obtain client consent before providing access to their audit working papers, Example Letter C may assist in obtaining client consent. Client consent may be obtained through other means, such as the terms of the audit engagement.

Access to Audit Working Papers of the Associate or Joint Venture Auditor (not under ASA 600)

When an audit client has an investment in an associate or is one of the parties in a joint venture, the audit client’s auditor may seek access to the audit working papers belonging to the auditor of the associate or joint venture. In this context, issues similar to those related to access to audit working papers of the auditor of a controlled entity or component by the group auditor (discussed above) will need to be considered. Normally, audit arrangements are outlined in the joint venture agreement, wherein one auditor is appointed to audit the joint venture. Audit arrangements for an associate may be outlined in a contract and/or agreement. However, as the investment in the associate or joint venture may be material to one or more of the investors or joint venturers (whose financial report may be audited by another auditor), it may be necessary for that auditor to gain access to the audit working papers of the associate’s or joint venture’s auditor. Unless specifically provided for in the auditor’s contract of appointment with the associate or joint venture, the auditors of the associate or joint venture parties may not be legally entitled to such access. However, to assist the auditor of an investor or joint venturer, access may be granted at the discretion of all the relevant parties to the associate or joint venture and the associate’s or joint venture’s auditor. When the auditor of the associate or joint venture determines it is necessary to establish and agree conditions for providing access to audit working papers, Example Letter A in Appendix 1 may help identify an appropriate basis for making audit working papers available to the investor’s auditor. When the auditor of the associate or joint venture determines it is necessary to obtain client consent before providing access to their audit working papers, Example Letter C may assist in obtaining client consent. Client consent may be obtained through other means, such as the terms of the engagement.