Group Audits and Transnational Auditing
Reporting
Group Audits and Transnational Auditing
Syllabus tag: KASNEB CPA | Advanced Level | CA36 Advanced Auditing and Assurance
1. ISA 600 — overview
The group auditor (group engagement team) has overall responsibility for the group audit opinion. Component auditors audit individual subsidiaries, divisions, or other components. The group auditor cannot simply adopt component auditors' work without adequate direction, supervision, and review.
2. Understanding the group
Required understanding: group structure (legal and reporting entities); group-wide controls including consolidation procedures; the consolidation process; competence and independence of component auditors; significant components.
3. Significant components
A component that is individually financially significant (e.g. >15% of group revenue, profit, or assets) or contains specific group-level risks of material misstatement. For significant components: full audit or audit of specific financial statement items. For non-significant components: analytical procedures, a review, or specified procedures.
4. Consolidation areas
Intragroup eliminations: intragroup sales, purchases, balances, dividends, and unrealised profits must be eliminated. Goodwill on acquisition: fair value of consideration less fair value of net assets; annual impairment testing under IAS 36. Non-controlling interests (NCI): attribution of profits, losses, and net assets. Foreign currency translation: applying IAS 21 to translate foreign subsidiaries using closing rate (balance sheet) and average rate (income statement); translation differences in OCI.
5. Communication with component auditors
Group team issues instructions: timeline, component materiality, required scope of work, significant risks identified at group level, required communications back. Component auditors report: procedures performed, key findings, significant risks encountered, and matters relevant to the group audit.
6. Transnational auditing challenges
Different auditing and accounting standards; language and communication barriers; different legal and regulatory environments; differences in ethical and independence requirements. The group auditor retains overall responsibility for quality regardless of where component work is performed.
7. Associates and joint ventures
For material associates and JVs, the auditor obtains sufficient evidence about the investee's financial information used in equity accounting (IAS 28/IFRS 11). If the group auditor cannot access component information, this represents a limitation of scope.