Section Understanding the Component Auditors (Re - ASA 600 - Special Considerations – Audits of a Group Financial Report (Including the Work of Component Auditors) - October 2009 - Understanding the Component Auditors (Ref: Para. 19) | Zoe
ASA 600 - Special Considerations – Audits of a Group Financial Report (Including the Work of Component Auditors) - October 2009
Understanding the Component Auditors (ReUnderstanding the Component Auditors (Ref: Para. 19)
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Understanding the Component Auditors (Ref: Para. 19)
The group engagement team obtains an understanding of a component auditor only when it plans to request the component auditor to perform work on the financial information of a component for the group audit. For example, it will not be necessary to obtain an understanding of the auditors of those components for which the group engagement team plans to perform analytical procedures at group level only.
Group Engagement Team’s Procedures to Obtain an Understanding of the Component Auditor and Sources of Audit Evidence (Ref: Para. 19)
The nature, timing and extent of the group engagement team’s procedures to obtain an understanding of the component auditor are affected by factors such as previous experience with or knowledge of the component auditor, and the degree to which the group engagement team and the component auditor are subject to common policies and procedures, for example:
Whether the group engagement team and a component auditor share:
Common policies and audit procedures for performing the work (for example, audit methodologies);
Common quality control policies and procedures; or
Common monitoring policies and procedures.
The consistency or similarity of:
Laws and regulations or legal system;
Professional oversight, discipline, and external quality assurance;
Education and training;
Professional organisations and standards; and
Language and culture.
These factors interact and are not mutually exclusive. For example, the extent of the group engagement team’s procedures to obtain an understanding of Component Auditor A, who consistently applies common quality control and monitoring policies and procedures and a common audit methodology or operates in the same jurisdiction as the group engagement partner, may be less than the extent of the group engagement team’s procedures to obtain an understanding of Component Auditor B, who is not consistently applying common quality control and monitoring policies and procedures and a common audit methodology or operates in a foreign jurisdiction. The nature of the procedures performed in relation to Component Auditors A and B may also be different.
The group engagement team may obtain an understanding of the component auditor in a number of ways. In the first year of involving a component auditor, the group engagement team may, for example:
Evaluate the results of the quality control monitoring system where the group engagement team and component auditor are from a firm or network that operates under and complies with common monitoring policies and procedures;
Visit the component auditor to discuss the matters in paragraph 19(a)‑(c);
Request the component auditor to confirm the matters referred to in paragraph 19(a)‑(c) in writing. Appendix 4 contains an example of written confirmations by a component auditor;
Request the component auditor to complete questionnaires about the matters in paragraph 19(a)‑(c);
Discuss the component auditor with colleagues in the group engagement partner’s firm, or with a reputable third party that has knowledge of the component auditor; or
Obtain, where possible under applicable law or regulation, confirmations of credentials, such as confirmation of membership of a professional body, from the professional body or bodies to which the component auditor belongs, the authorities by which the component auditor is licensed, or other third parties.
In subsequent years, the understanding of the component auditor may be based on the group engagement team’s previous experience with the component auditor. The group engagement team may request the component auditor to confirm whether anything in relation to the matters listed in paragraph 19(a)‑(c) has changed since the previous year.
Where independent oversight bodies have been established to oversee the auditing profession and monitor the quality of audits, awareness of the regulatory environment may assist the group engagement team in evaluating the independence and competence of the component auditor. Information about the regulatory environment may be obtained from the component auditor or information provided by the independent oversight bodies.
Ethical Requirements that Are Relevant to the Group Audit (Ref: Para. 19(a))
When performing work on the financial information of a component for a group audit, the component auditor is subject to ethical requirements that are relevant to the group audit. Such requirements may be different or in addition to those applying to the component auditor when performing a statutory audit in the component auditor’s jurisdiction. The group engagement team therefore obtains an understanding whether the component auditor understands and will comply with the ethical requirements that are relevant to the group audit, sufficient to fulfil the component auditor’s responsibilities in the group audit.
The Component Auditor’s Professional Competence (Ref: Para. 19(b))
The group engagement team’s understanding of the component auditor’s professional competence may include whether the component auditor:
Possesses an understanding of auditing and other standards applicable to the group audit that is sufficient to fulfill the component auditor’s responsibilities in the group audit;
Possesses the special skills (for example, industry specific knowledge) necessary to perform the work on the financial information of the particular component; and
Where relevant, possesses an understanding of the applicable financial reporting framework that is sufficient to fulfill the component auditor’s responsibilities in the group audit (instructions issued by group management to components often describe the characteristics of the applicable financial reporting framework).
Application of the Group Engagement Team’s Understanding of a Component Auditor (Ref: Para. 20)
The group engagement team cannot overcome the fact that a component auditor is not independent by being involved in the work of the component auditor or by performing additional risk assessment or further audit procedures on the financial information of the component.
However, the group engagement team may be able to overcome less than serious concerns about the component auditor’s professional competency (for example, lack of industry specific knowledge), or the fact that the component auditor does not operate in an environment that actively oversees auditors, by being involved in the work of the component auditor or by performing additional risk assessment or further audit procedures on the financial information of the component.
Where law or regulation prohibits access to relevant parts of the audit documentation of the component auditor, the group engagement team may request the component auditor to overcome this by preparing a memorandum that covers the relevant information.