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CA Final · Advanced Auditing, Assurance and Professional Ethics

Group Audits for CA Final: SA 600 and Work of Other Auditors

Group audits deal with how a group engagement partner audits group financial statements that include components audited by component auditors, under the revised SA 600. To solve questions, understand the group, decide on acceptance, identify significant components, set component materiality, direct and review the component auditors' work, evaluate the evidence, and report without referring to them.

What this chapter covers

This chapter covers what happens when one auditor signs the report on group financial statements, but the financial information of some components, such as branches, subsidiaries, associates or joint ventures, is audited by other auditors. Under the revised SA 600, Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors), the partner who signs is the group engagement partner. The auditors of components are the component auditors.

This revised standard is the basis for your answers. Use the terms group engagement partner and component auditor. The group engagement partner takes sole responsibility for the group audit opinion, so there is no division of responsibility. The group auditor's report does not refer to the component auditor unless law or regulation requires it. Even then, the reference does not reduce the group engagement partner's or the firm's responsibility.

The chapter asks four things: should you accept the engagement, how do you plan the group audit and set component materiality, how do you direct and review the component auditors' work, and how do you report.

Most questions are short case scenarios. A company has a subsidiary audited by another firm, or a branch with a different auditor. You are asked what the group engagement partner should do, which components are significant, whether the component auditor's work is enough, or what happens if the component auditor's report is modified. The answer always runs in the same order: the facts, the standard's requirement, and the conclusion.

The chapter links to several other parts of the paper. Acceptance links to engagement acceptance and quality management. Risk assessment and materiality link to planning. Involvement in the component auditor's work links to audit evidence, documentation and communication. Reporting links to the audit report standards and modified opinions. It also links to the Code of Ethics, because the independence and competence of the component auditor matter. Your Financial Reporting knowledge of consolidation helps you see which components are in the picture and how the consolidation process works.

Group Audits is a compact chapter with a clear logic, so it is easy to score in once you know the sequence. Case-scenario MCQs test whether you can spot who is responsible for what, and written questions reward answers in provision-facts-conclusion form. The same ideas also support questions in the audit report, consolidated financial statements and ethics chapters, and they fit Paper 6 case studies that mix audit with group reporting. A small amount of focused effort here earns marks you would otherwise lose through muddled responsibility statements.

Group Audits: topics in the order to study them

  1. 1SA 600 Scope, Definitions and Key TermsYou need the terms (group, component, group engagement partner, component auditor, significant component) and the scope before any rule makes sense.
  2. 2Understanding the Group and Engagement AcceptanceThe first decision in any case is whether the group engagement team can obtain sufficient appropriate audit evidence, so it comes before the work on components.
  3. 3Significant Components, Component Materiality, Direction and ReviewOnce you have accepted the engagement, you must decide which components matter, set component materiality, and direct and review the component auditors' work.
  4. 4Evaluating Evidence and Reporting on the GroupReporting is the end result of the earlier steps, so it is easiest to learn last. It covers evaluating the evidence, modified opinions and reporting without referring to the component auditor.

How to prepare Group Audits

Prepare this chapter as one process you can replay in an exam, not as four separate lists.

  1. Read the scope and definitions once and write a one-line meaning for each term in your own words, so you never mix up the group engagement partner, the group engagement team and the component auditor.
  2. Build a flow on one page: understand the group, decide on acceptance, identify significant components, set component materiality, direct and review the component auditors, evaluate the evidence, and report.
  3. For acceptance, learn the test you apply: can the group engagement team reasonably expect to obtain sufficient appropriate audit evidence, through the consolidation process and the work on components, to base the group opinion on?
  4. For direction and review, list what you consider about the component auditor (relevant ethical requirements including independence, professional competence), what you communicate to them, and how you evaluate what they report back. Keep it in a form you can write quickly.
  5. Practise reporting by writing a conclusion for the same case twice: once where no reference is required, and once where law or regulation requires a reference. Note that in both the group engagement partner stays solely responsible.
  6. Solve past ICAI-style scenarios and mock questions, writing each answer as provision, facts, conclusion.
  7. Finish with a modified-opinion drill: for each case, ask what the component auditor's report says, how significant it is to the group, and whether it affects the group opinion.

Common mistakes in Group Audits

  • Mixing up the group engagement team and the component auditor in a scenario.

    Fix: Underline the group whose statements are being reported on, then mark the group engagement partner and each component auditor before you write.

  • Skipping the acceptance decision and jumping to procedures.

    Fix: Start every answer with whether the group engagement team can obtain sufficient appropriate audit evidence for the group opinion and why, based on the facts.

  • Writing that using a component auditor divides or reduces the group engagement partner's responsibility.

    Fix: Write that the group engagement partner is solely responsible for the group opinion and there is no division of responsibility. The report does not refer to the component auditor unless law or regulation requires it, and any such reference must state that it does not reduce the group engagement partner's or the firm's responsibility.

  • Listing procedures as a memorised block without linking them to the facts.

    Fix: Pick only the procedures the facts call for, such as doubts on competence or a significant component, and say why each is needed.

  • Automatically modifying the group audit report whenever the component auditor's report is modified.

    Fix: Assess whether the matter is significant to the group financial statements, then conclude. Show your reasoning.

  • Relying on the component auditor's report alone, without setting component materiality or directing and reviewing their work.

    Fix: Show that the group engagement team set component materiality, communicated its requirements, evaluated the component auditor's communication, and decided whether further involvement was needed.

Last-day revision: Group Audits

  • The group engagement partner is responsible for the group audit engagement and its performance, and signs the report on the group financial statements.
  • Component auditors audit or review the financial information of components for the group audit. The group engagement team directs and reviews their work.
  • This page follows the revised SA 600. Use the terms group engagement partner and component auditor in your answers.
  • First decision: can the group engagement team reasonably expect to obtain sufficient appropriate audit evidence, through the consolidation process and the work on components?
  • Understand the group, its components, its environment and the consolidation process. This is the basis for risk assessment.
  • Identify significant components, for example those of individual financial significance or those likely to include significant risks because of their nature or circumstances.
  • Component materiality is set for the work on components. It is set by the group engagement team, not left to the component auditor.
  • Before relying on a component auditor, consider their relevant ethical requirements including independence, and their professional competence.
  • Communicate clearly to the component auditor the work you need and the form of their report. Then evaluate their communication and decide whether more involvement in their work is needed.
  • If you cannot obtain sufficient appropriate audit evidence for the group, consider the effect on your opinion.
  • There is no division of responsibility. The group engagement partner is solely responsible for the group opinion. The report does not refer to the component auditor unless law or regulation requires it. If it does, it must say the reference does not reduce the group engagement partner's or the firm's responsibility.
  • Always write answers in provision, facts and conclusion order. Case MCQs have no negative marking, so attempt every one.

Group Audits practice questions

Group Audits in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Group Audits: frequently asked questions

What is a group audit in CA Final?

It is an audit of group financial statements that include the financial information of more than one component, such as branches or subsidiaries, some of which may be audited by component auditors. The auditor who reports on the group is led by the group engagement partner. The revised SA 600 sets out how the group engagement team understands the group, sets component materiality, involves itself in the component auditors' work and reports.

Does the group engagement partner become less responsible by using a component auditor?

No. The group engagement partner is solely responsible for the group audit opinion. The group auditor's report does not refer to the component auditor unless law or regulation requires it. If such a reference is required, the report should make clear that it does not reduce the group engagement partner's or the firm's responsibility.

What should I do if the component auditor's report is modified?

Read the modification and judge whether the matter is significant to the group financial statements. If it is, consider whether the group opinion needs to be modified. If you cannot obtain sufficient appropriate audit evidence for the group, you must also consider the effect on your opinion. Give your reasoning and then your conclusion.

How should I write a written answer on this chapter?

Use provision, facts and conclusion. State the requirement of the revised SA 600, apply it to the facts in the scenario, and end with a clear conclusion on what the group engagement partner should do or report.

Is this chapter useful for Paper 6?

Yes. Paper 6 is a case-study paper that tests integrated knowledge, including audit. A case with subsidiaries or branches can ask about the group auditor's role, the component auditors' work and reporting, so the same reasoning applies.