Advanced Audit and Assurance (International) · Group audits

Group Audit Acceptance and Understanding the Group and Its Components

Updated 11 October 2026 · Fact-checked

Group audit acceptance means deciding whether the group engagement team can obtain sufficient appropriate evidence on the consolidated statements, including through component auditors. Understanding the group means learning its structure, components, consolidation process, controls and risks, then using this to assess risks of material misstatement and plan the work.

Understand Acceptance and Understanding the Group and Its Components

A group audit is an audit of group financial statements. The group engagement partner is responsible for the group opinion, even when other auditors audit parts of the group. You cannot blame a component auditor for a wrong group opinion. That is why acceptance and understanding come first.

At acceptance and continuance, ask one core question: will we be able to obtain sufficient appropriate evidence on the consolidation and on the components? Consider the integrity of group management, the firm's competence and capacity, independence of the firm and of component auditors, and access to people, information and component auditors. If group management or those charged with governance restrict access and you cannot overcome this, you may have to decline or withdraw. Where withdrawal is not possible, a disclaimer of opinion may be needed.

Next, understand the group. A component is an entity or business activity for which group or component management prepares financial information that the group must include. Learn the group structure, the nature of each component's business, locations, the financial reporting framework used and whether it differs from the group's, group-wide controls, the consolidation process, and any related party relationships. Also understand the group-wide IT systems and how adjustments such as fair value adjustments and intragroup eliminations are made.

Then assess risks and plan. Identify components that are significant because of size or because they carry specific risks. Decide the type of work needed on each component and who will do it. Where a component auditor is involved, assess their professional competence, independence, and the regulatory and ethical environment they work in. Consider how much you will involve yourself in their risk assessment and further work.

In the exam, the marks come from applying these ideas to the scenario. Name the specific risk (for example a new overseas subsidiary with an unknown auditor), explain why it matters, and state what you would do about it.

Key rules to remember

Acceptance test: Accept only if the group team expects to obtain sufficient appropriate evidence on the group financial statements; This applies at acceptance and each continuance. If it fails and cannot be fixed, decline or withdraw as the law allows.
Group engagement partner responsibility: Group opinion responsibility = group engagement partner, whether or not component auditors are used; The auditor's report must not refer to the component auditor as a way of reducing responsibility.
Component auditor evaluation: Competence + Independence + Regulatory and ethical environment + Ability to communicate and get access; Use these four areas to structure any answer on whether to rely on a component auditor.
Understanding the group: Structure + Components + Business and environment + Reporting framework + Group-wide controls + Consolidation process; A checklist for what must be understood before assessing risk.
Scoping prompt: Components: significant by size, significant by risk, or other; The type of work depends on the category. Do not state fixed percentage cut-offs unless the question gives them.

How to solve Acceptance and Understanding the Group and Its Components questions

Use this method for any question on group audit acceptance, understanding the group or component auditors.

1Read the requirement and note whether it asks about acceptance, understanding, risks, or component auditors. Underline the numbers and countries in the scenario.
2Identify the group structure from the scenario: parent, subsidiaries, associates, joint ventures, new acquisitions and disposals.
3For acceptance, test integrity of management, firm competence and capacity, independence, and access to information and component auditors.
4For understanding, list what you must learn about the group: business, reporting framework, group-wide controls, consolidation process and related parties.
5Link each fact in the scenario to a risk or an action. For example, a different reporting framework means conversion adjustments, which creates a risk of error.
6For each component auditor, assess competence, independence, ethical and regulatory environment, and access. Then say how involved you will be.
7Conclude with a clear recommendation, such as accept, accept with conditions, or decline, and say what you need before proceeding.
8Add a professional skills point where relevant, such as scepticism about group management's explanations or a sensible communication with those charged with governance.

Quickest way: Four-box scan for group scenarios

When to use it: Use when time is short and the scenario lists many components and auditors.

Draw four boxes: Acceptance, Group understanding, Component auditors, Consolidation.
Scan the scenario once and write each fact into the box it affects.
For each fact write a short risk and a short action in the margin.
Order your answer by importance: restrictions on access and integrity issues first, then significant components, then routine points.
Write each point as fact, risk, action. This is the structure that earns application marks.

Common mistakes in Acceptance and Understanding the Group and Its Components

Listing general acceptance factors without using the scenario.
Students memorise a list and write it out.
Fix: Tie every factor to a fact in the scenario, then state the effect on the decision.
Saying the group auditor can rely on the component auditor and so has no responsibility for that work.
Students confuse using someone's work with transferring responsibility.
Fix: State that the group engagement partner remains responsible for the group opinion and must be involved in the component work.
Treating all components the same.
The scenario gives a list and students apply one approach to all.
Fix: Separate components that are significant by size, significant by risk, and other. Choose different work for each.
Ignoring differences in reporting framework or accounting policies.
Students focus on the audit and forget how the financial information is prepared.
Fix: Note the adjustments needed to bring component information into line with group policies and treat them as a risk area.
Forgetting independence and ethics of the component auditor.
Students concentrate on competence only.
Fix: Always check that the component auditor meets the relevant ethical requirements, including independence from the group.
Ending without a conclusion on acceptance.
Students run out of time or only describe issues.
Fix: Finish with a clear decision and the conditions needed, such as obtaining access to the component auditor's working papers.

Worked examples

Example 1

Falcon Co is a listed manufacturer. You are the group audit manager for the first year of the audit. Falcon has acquired Kestrel Ltd, an overseas subsidiary, during the year. Kestrel is audited by a small local firm that your firm has not worked with, and Kestrel uses local accounting standards. Group management says the component auditor will not give you access to its working papers because of local confidentiality. Explain the matters you would consider in deciding whether to accept the group audit and how you would respond to the access issue.

Show the solution

State the test: you can accept only if you expect to obtain sufficient appropriate evidence on the group financial statements, including Kestrel.
Consider the access issue first. Kestrel is a new subsidiary and its auditor is unknown. Lack of access to working papers limits your ability to be involved in the component work and to review it.
Ask group management why access is refused and whether the restriction is a real legal barrier. Be sceptical, as the explanation is given by management who benefit from less scrutiny.
Consider alternatives. You could do additional work on Kestrel yourself, send your own team, or appoint a different component auditor. You could also ask the component auditor to provide information in other ways, such as meetings and written summaries.
Assess the component auditor: competence and experience, independence from the group, the local ethical and regulatory environment, and the quality of their work.
Note the reporting framework risk. Local standards differ from the group's framework, so adjustments are needed. This increases risk of error in consolidation and requires understanding of how adjustments are made.
Consider other acceptance factors: the integrity of Falcon's management, whether the firm has the competence and capacity for the group, and whether the firm is independent.
Conclude: accept only if access can be obtained or alternative work can give sufficient evidence. If the restriction stays and cannot be overcome, decline the engagement. If the restriction arose after acceptance and withdrawal is not possible, a disclaimer of opinion would be needed.

Answer: Accept only if you can obtain sufficient appropriate evidence on Kestrel. The access restriction is the key issue: challenge it, look for alternatives such as direct work or a different component auditor, and assess the component auditor's competence, independence and environment. If the restriction cannot be overcome, decline.

Example 2

Orion Group has 12 components. Two subsidiaries together contribute most of group revenue. One small subsidiary holds a complex derivative portfolio that creates a risk of material misstatement. The remaining components are small and routine. Explain how you would use your understanding of the group to decide the work to be done on the components.

Show the solution

Start with understanding: learn the structure, the business of each component, the reporting framework and the consolidation process. This is needed before you can scope.
Classify the components. The two large subsidiaries are significant because of their size. The small derivative subsidiary is significant because of a specific risk, even though it is small. The rest are other components.
For the two large subsidiaries, plan an audit of the financial information, or an audit of specified account balances, because they make up a large part of the group.
For the derivative subsidiary, plan work focused on the risky areas such as valuation and disclosure of the derivatives. Consider whether an expert is needed.
For the remaining components, consider group-level analytical procedures to identify unusual movements. Further work is needed only if analytical procedures do not give enough comfort.
Decide who will do the work. For each component auditor, assess competence, independence and environment, and decide how involved the group team must be, particularly for the derivative risk.
Record the reasoning, and ensure that overall you will have sufficient appropriate evidence for the group financial statements.

Answer: Scope by category: full or specified-balance work on the two large subsidiaries, risk-focused work on the derivative subsidiary, and group-level analytical procedures on the small routine components, with extra work if these give insufficient comfort. Assess component auditors and involve the group team in the high-risk area.

Exam tips

Always use the scenario. A bare list of ISA 600 points earns few marks.
Open with the group engagement partner's responsibility whenever component auditors appear in the question.
When a restriction on access appears, discuss alternatives, then give a clear conclusion on accept, decline or withdraw.
Use the four checks for component auditors: competence, independence, regulatory and ethical environment, and access.
Show professional scepticism toward group management explanations, and say so in your answer to gain professional skills marks.

Practice questions from Group audits

Acceptance and Understanding the Group and Its Components: frequently asked questions

What should a group auditor consider before accepting a group audit?

Consider the integrity of group management, the firm's competence, capacity and independence, and whether you will have sufficient access to people, information and component auditors. The central test is whether you expect to obtain sufficient appropriate evidence on the group financial statements.

Who is responsible for the group audit opinion?

The group engagement partner is responsible for the group opinion. This stays true even when component auditors audit parts of the group. Using their work does not transfer responsibility.

What do you need to understand about the group and its components?

You need the group structure, the business and environment of the components, their reporting framework, group-wide controls, the consolidation process and related parties. You also need to understand any component auditors involved.

How do I assess a component auditor in the exam?

Use four headings: professional competence, independence and ethical compliance, the regulatory and professional environment, and your ability to communicate with and access them. Apply each to the facts given and then say how involved you will be in their work.