The group engagement partner is responsible for the direction, supervision and performance of the group audit engagement in compliance with professional standards and applicable legal and regulatory requirements, and whether the auditor’s report that is issued is appropriate in the circumstances.^[3]  As a result, the auditor’s report on the group financial reports shall not refer to a component auditor, unless required by law or regulation to include such reference.  If such reference is required by law or regulation, the auditor’s report shall indicate that the reference does not diminish the group engagement partner’s or the group engagement partner’s firm’s responsibility for the group audit opinion.  (Ref: Para. A8‑A9)

In applying ASA 220, the group engagement partner shall determine whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the consolidation process and the financial information of the components on which to base the group audit opinion.  For this purpose, the group engagement team shall obtain an understanding of the group, its components, and their environments that is sufficient to identify components that are likely to be significant components.  Where component auditors will perform work on the financial information of such components, the group engagement partner shall evaluate whether the group engagement team will be able to be involved in the work of those component auditors to the extent necessary to obtain sufficient appropriate audit evidence.  (Ref: Para. A10‑A12)

If the group engagement partner concludes that: 

1. it will not be possible for the group engagement team to obtain sufficient appropriate audit evidence due to restrictions imposed by group management; and 
2. the possible effect of this inability will result in a disclaimer of opinion on the group financial report,^[4] 

the group engagement partner shall either: 

• in the case of a new engagement, not accept the engagement, or, in the case of a continuing engagement, withdraw from the engagement, where withdrawal is possible under applicable law or regulation; or 
• where law or regulation prohibits an auditor from declining an engagement or where withdrawal from an engagement is not otherwise possible, having performed the audit of the group financial report to the extent possible, disclaim an opinion on the group financial report.  (Ref: Para. A13‑A19)

Terms of Engagement

The group engagement partner shall agree on the terms of the group audit engagement in accordance with ASA 210. ^[5]  (Ref: Para. A20‑A21)

The group engagement team shall establish an overall group audit strategy and shall develop a group audit plan in accordance with ASA 300.^[6]

The group engagement partner shall review the overall group audit strategy and group audit plan.  (Ref: Para. A22)

The auditor is required to identify and assess the risks of material misstatement through obtaining an understanding of the entity and its environment, the applicable financial reporting framework and the system of internal control.^[7]  The group engagement team shall: 

1. Enhance its understanding of the group, its components, and their environments, including group‑wide controls, obtained during the acceptance or continuance stage; and 
2. Obtain an understanding of the consolidation process, including the instructions issued by group management to components.  (Ref: Para. A23‑A29)

The group engagement team shall obtain an understanding that is sufficient to: 

1. Confirm or revise its initial identification of components that are likely to be significant; and 
2. Assess the risks of material misstatement of the group financial report, whether due to fraud or error.^[8]  (Ref: Para. A30‑A31)

If the group engagement team plans to request a component auditor to perform work on the financial information of a component, the group engagement team shall obtain an understanding of the following:  (Ref: Para. A32‑A35) 

1. Whether the component auditor understands and will comply with the ethical requirements that are relevant to the group audit and, in particular, is independent.  (Ref: Para. A37) 
2. The component auditor’s professional competence.  (Ref: Para. A38) 
3. Whether the group engagement team will be able to be involved in the work of the component auditor to the extent necessary to obtain sufficient appropriate audit evidence.  
4. Whether the component auditor operates in a regulatory environment that actively oversees auditors.  (Ref: Para. A36)

If a component auditor does not meet the independence requirements that are relevant to the group audit, or the group engagement team has serious concerns about the other matters listed in paragraph 19(a)‑(c) of this Auditing Standard, the group engagement team shall obtain sufficient appropriate audit evidence relating to the financial information of the component without requesting that component auditor to perform work on the financial information of that component.  (Ref: Para. A39‑A41)

The group engagement team shall determine the following:  (Ref: Para. A42) 

1. Materiality for the group financial report as a whole when establishing the overall group audit strategy. 
2. If, in the specific circumstances of the group, there are particular classes of transactions, account balances or disclosures in the group financial report for which misstatements of lesser amounts than materiality for the group financial report as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the group financial report,  the materiality level or levels to be applied to those particular classes of transactions, account balances or disclosures. 
3. Component materiality for those components where component auditors will perform an audit or a review for purposes of the group audit.  To reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the group financial report exceeds materiality for the group financial report as a whole, component materiality shall be lower than materiality for the group financial report as a whole.  (Ref: Para. A43‑A44) 
4. The threshold above which misstatements cannot be regarded as clearly trivial to the group financial report.  (Ref: Para. A45)

Where component auditors will perform an audit for purposes of the group audit, the group engagement team shall evaluate the appropriateness of performance materiality determined at the component level.  (Ref: Para. A46)

If a component is subject to audit by statute, regulation or other reason, and the group engagement team decides to use that audit to provide audit evidence for the group audit, the group engagement team shall determine whether: 

1. materiality for the component financial report as a whole; and 
2. performance materiality at the component level 

meet the requirements of this Auditing Standard.

The auditor is required to design and implement appropriate responses to address the assessed risks of material misstatement of the financial report.^[9]  The group engagement team shall determine the type of work to be performed by the group engagement team, or the component auditors on its behalf, on the financial information of the components, see paragraphs 26‑29 of this Auditing Standard.  The group engagement team shall also determine the nature, timing and extent of its involvement in the work of the component auditors, see paragraphs 30‑31 of this Auditing Standard. 

If the nature, timing and extent of the work to be performed on the consolidation process or the financial information of the components are based on an expectation that group‑wide controls are operating effectively, or if substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level, the group engagement team shall test, or request a component auditor to test, the operating effectiveness of those controls.

Determining the Type of Work to Be Performed on the Financial Information of Components (Ref: Para. A47)

Significant Components

For a component that is significant due to its individual financial significance to the group, the group engagement team, or a component auditor on its behalf, shall perform an audit of the financial information of the component using component materiality.

For a component that is significant because it is likely to include significant risks of material misstatement of the group financial report due to its specific nature or circumstances, the group engagement team, or a component auditor on its behalf, shall perform one or more of the following: 

1. An audit of the financial information of the component using component materiality. 
2. An audit of one or more account balances, classes of transactions or disclosures relating to the likely significant risks of material misstatement of the group financial report.  (Ref: Para. A48) 
3. Specified audit procedures relating to the likely significant risks of material misstatement of the group financial report.  (Ref: Para. A49)

Components that Are Not Significant Components

For components that are not significant components, the group engagement team shall perform analytical procedures at group level.  (Ref: Para. A50)

If the group engagement team does not consider that sufficient appropriate audit evidence on which to base the group audit opinion will be obtained from: 

1. the work performed on the financial information of significant components; 
2. the work performed on group‑wide controls and the consolidation process; and 
3. the analytical procedures performed at group level, 

the group engagement team shall select components that are not significant components and shall perform, or request a component auditor to perform, one or more of the following on the financial information of the individual components selected:  (Ref: Para. A51‑A53) 

• An audit of the financial information of the component using component materiality. 
• An audit of one or more account balances, classes of transactions or disclosures. 
• A review of the financial information of the component using component materiality. 
• Specified procedures. 

The group engagement team shall vary the selection of components over a period of time.

Involvement in the Work Performed by Component Auditors  (Ref: Para. A54‑A55)

Significant Components—Risk Assessment

If a component auditor performs an audit of the financial information of a significant component, the group engagement team shall be involved in the component auditor’s risk assessment to identify significant risks of material misstatement of the group financial report.  The nature, timing and extent of this involvement are affected by the group engagement team’s understanding of the component auditor, but at a minimum shall include: 

1. Discussing with the component auditor or component management those of the component’s business activities that are significant to the group; 
2. Discussing with the component auditor the susceptibility of the component to material misstatement of the financial information due to fraud or error; and 
3. Reviewing the component auditor’s documentation of identified significant risks of material misstatement of the group financial report.  Such documentation may take the form of a memorandum that reflects the component auditor’s conclusion with regard to the identified significant risks.

Identified Significant Risks of Material Misstatement of the Group Financial Report—Further Audit Procedures

If significant risks of material misstatement of the group financial report have been identified in a component on which a component auditor performs the work, the group engagement team shall evaluate the appropriateness of the further audit procedures to be performed to respond to the identified significant risks of material misstatement of the group financial report.  Based on its understanding of the component auditor, the group engagement team shall determine whether it is necessary to be involved in the further audit procedures.

In accordance with paragraph 17 of this Auditing Standard, the group engagement team obtains an understanding of group‑wide controls and the consolidation process, including the instructions issued by group management to components.  In accordance with paragraph 25 of this Auditing Standard, the group engagement team, or component auditor at the request of the group engagement team, tests the operating effectiveness of group‑wide controls if the nature, timing and extent of the work to be performed on the consolidation process are based on an expectation that group‑wide controls are operating effectively, or if substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level.

The group engagement team shall design and perform further audit procedures on the consolidation process to respond to the assessed risks of material misstatement of the group financial report arising from the consolidation process.  This shall include evaluating whether all components have been included in the group financial report.

The group engagement team shall evaluate the appropriateness, completeness and accuracy of consolidation adjustments and reclassifications, and shall evaluate whether any fraud risk factors or indicators of possible management bias exist.  (Ref: Para. A56)

If the financial information of a component has not been prepared in accordance with the same accounting policies applied to the group financial report, the group engagement team shall evaluate whether the financial information of that component has been appropriately adjusted for purposes of preparing and presenting the group financial report.

The group engagement team shall determine whether the financial information identified in the component auditor’s communication, see paragraph 41(c) of this Auditing Standard, is the financial information that is incorporated in the group financial report.

If the group financial report includes the financial report of a component with a financial reporting period‑end that differs from that of the group, the group engagement team shall evaluate whether appropriate adjustments have been made to the financial report in accordance with the applicable financial reporting framework.

Where the group engagement team or component auditors perform audits on the financial information of components, the group engagement team or the component auditors shall perform procedures designed to identify events at those components that occur between the dates of the financial information of the components and the date of the auditor’s report on the group financial report, and that may require adjustment to or disclosure in the group financial report.

Where component auditors perform work other than audits of the financial information of components, the group engagement team shall request the component auditors to notify the group engagement team if they become aware of subsequent events that may require an adjustment to or disclosure in the group financial report.

The group engagement team shall communicate its requirements to the component auditor on a timely basis.  This communication shall set out the work to be performed, the use to be made of that work, and the form and content of the component auditor’s communication with the group engagement team.  It shall also include the following:  (Ref: Para. A57, A58, A60) 

1. A request that the component auditor, knowing the context in which the group engagement team will use the work of the component auditor, confirms that the component auditor will cooperate with the group engagement team.  (Ref: Para. A59) 
2. The ethical requirements that are relevant to the group audit and, in particular, the independence requirements. 
3. In the case of an audit or review of the financial information of the component, component materiality (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) and the threshold above which misstatements cannot be regarded as clearly trivial to the group financial report. 
4. Identified significant risks of material misstatement of the group financial report, due to fraud or error, that are relevant to the work of the component auditor.  The group engagement team shall request the component auditor to communicate on a timely basis any other identified significant risks of material misstatement of the group financial report, due to fraud or error, in the component, and the component auditor’s responses to such risks. 
5. A list of related parties prepared by group management, and any other related parties of which the group engagement team is aware.  The group engagement team shall request the component auditor to communicate on a timely basis related parties not previously identified by group management or the group engagement team.  The group engagement team shall determine whether to identify such additional related parties to other component auditors.

The group engagement team shall request the component auditor to communicate matters relevant to the group engagement team’s conclusion with regard to the group audit.  Such communication shall include:  (Ref: Para. A60) 

1. Whether the component auditor has complied with ethical requirements that are relevant to the group audit, including independence and professional competence; 
2. Whether the component auditor has complied with the group engagement team’s requirements; 
3. Identification of the financial information of the component on which the component auditor is reporting; 
4. Information on instances of non‑compliance with laws or regulations that could give rise to a material misstatement of the group financial report; 
5. A list of uncorrected misstatements of the financial information of the component (the list need not include misstatements that are below the threshold for clearly trivial misstatements communicated by the group engagement team, see paragraph 40(c) of this Auditing Standard); 
6. Indicators of possible management bias; 
7. Description of any identified significant deficiencies in internal control at the component level; 
8. Other significant matters that the component auditor communicated or expects to communicate to those charged with governance of the component, including fraud or suspected fraud involving component management, employees who have significant roles in internal control at the component level or others where the fraud resulted in a material misstatement of the financial information of the component; 
9. Any other matters that may be relevant to the group audit, or that the component auditor wishes to draw to the attention of the group engagement team, including exceptions noted in the written representations that the component auditor requested from component management; and 
10. The component auditor’s overall findings, conclusions or opinion.

Evaluating the Component Auditors’ Communication and Adequacy of their Work

The group engagement team shall evaluate the component auditor’s communication, see paragraph 41 of this Auditing Standard.  The group engagement team shall: 

1. Discuss significant matters arising from that evaluation with the component auditor, component management or group management, as appropriate; and 
2. Determine whether it is necessary to review other relevant parts of the component auditor’s audit documentation.  (Ref: Para. A61)

If the group engagement team concludes that the work of the component auditor is insufficient, the group engagement team shall determine what additional procedures are to be performed, and whether they are to be performed by the component auditor or by the group engagement team.

Sufficiency and Appropriateness of Audit Evidence

The auditor is required to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion.^[10]  The group engagement team shall evaluate whether sufficient appropriate audit evidence has been obtained from the audit procedures performed on the consolidation process and the work performed by the group engagement team and the component auditors on the financial information of the components, on which to base the group audit opinion.  (Ref: Para. A62)

The group engagement partner shall evaluate the effect on the group audit opinion of any uncorrected misstatements (either identified by the group engagement team or communicated by component auditors) and any instances where there has been an inability to obtain sufficient appropriate audit evidence.  (Ref: Para. A63)

Communication with Group Management

The group engagement team shall determine which identified deficiencies in internal control to communicate to those charged with governance and group management in accordance with ASA 265.^[11]  In making this determination, the group engagement team shall consider: 

1. Deficiencies in group‑wide internal control that the group engagement team has identified; 
2. Deficiencies in internal control that the group engagement team has identified in internal controls at components; and 
3. Deficiencies in internal control that component auditors have brought to the attention of the group engagement team.

If fraud has been identified by the group engagement team or brought to its attention by a component auditor, see paragraph 41(h) of this Auditing Standard, or information indicates that a fraud may exist, the group engagement team shall communicate this on a timely basis to the appropriate level of group management in order to inform those with primary responsibility for the prevention and detection of fraud of matters relevant to their responsibilities.  (Ref: Para. A64)

A component auditor may be required by statute, regulation or for another reason, to express an audit opinion on the financial report of a component.  In that case, the group engagement team shall request group management to inform component management of any matter of which the group engagement team becomes aware that may be significant to the financial report of the component, but of which component management may be unaware.  If group management refuses to communicate the matter to component management, the group engagement team shall discuss the matter with those charged with governance of the group.  If the matter remains unresolved, the group engagement team, subject to legal and professional confidentiality considerations, shall consider whether to advise the component auditor not to issue the auditor’s report on the financial report of the component until the matter is resolved.  (Ref: Para. A65)

Communication with Those Charged with Governance of the Group

The group engagement team shall communicate the following matters with those charged with governance of the group, in addition to those required by ASA 260^[12] and other Auditing Standards:  (Ref: Para. A66) 

1. An overview of the type of work to be performed on the financial information of the components. 
2. An overview of the nature of the group engagement team’s planned involvement in the work to be performed by the component auditors on the financial information of significant components. 
3. Instances where the group engagement team’s evaluation of the work of a component auditor gave rise to a concern about the quality of that auditor’s work. 
4. Any limitations on the group audit, for example, where the group engagement team’s access to information may have been restricted. 
5. Fraud or suspected fraud involving group management, component management, employees who have significant roles in group‑wide controls or others where the fraud resulted in a material misstatement of the group financial report. 

The group engagement team shall include in the audit documentation the following matters:^[13] 

1. An analysis of components, indicating those that are significant, and the type of work performed on the financial information of the components. 
2. The nature, timing and extent of the group engagement team’s involvement in the work performed by the component auditors on significant components including, where applicable, the group engagement team’s review of relevant parts of the component auditors’ audit documentation and conclusions thereon. 
3. Written communications between the group engagement team and the component auditors about the group engagement team’s requirements.