Advanced Auditing, Assurance and Professional Ethics · Group Audits

Acceptance as Principal Auditor (SA 600) for CA Final

Updated 5 October 2026 · Fact-checked

Under SA 600, the auditor who wants to report on financial statements that include components audited by others must first judge whether his own participation is sufficient to act as principal auditor. He weighs four factors: materiality of the portion he audits, his knowledge of the components' business, the risk of material misstatement in the other auditor's portion, and the additional procedures he performs on that work.

Understand Acceptance as Principal Auditor

A group or entity often has branches, subsidiaries or other components audited by different auditors. The auditor who reports on the whole set of financial statements is the principal auditor. The others are other auditors. SA 600 (Using the Work of Another Auditor) deals with this relationship.

The first question is not how to use the other auditor's work. It is whether you should be the principal auditor at all. If you audit only a small slice and rely on others for most of the numbers, your opinion on the whole would rest mostly on work you have not directed or seen. That is the risk the acceptance test guards against.

So the standard asks you to consider whether your own participation is sufficient. It gives four factors to weigh. They are the materiality of the portion you audit, your degree of knowledge of the business of the components, the risk of material misstatement in the portion audited by the other auditor, and whether the additional procedures you perform on the other auditor's work give you significant participation in that audit.

There is no fixed percentage test. It is a judgment on all four factors together. A large portion audited by you usually helps, but it does not settle the matter if the risk in the other portion is high and you do not know the business. A smaller portion can be acceptable if you know the business well, risk is low and you do enough extra work.

In the exam, write the answer as: the rule, the facts of the case against each factor, and a clear conclusion on whether you can act as principal auditor.

Key rules to remember

Core rule: Principal auditor must consider whether his own participation is sufficient to act as principal auditor; This is the acceptance test in the standard. It is a judgment, not a numerical cut-off.
Factor 1: Materiality: Materiality of the portion of financial information audited by the principal auditor; Compare what you audit with what others audit, in terms of assets, revenue, profit or other relevant measures.
Factor 2: Knowledge: Degree of the principal auditor's knowledge of the business of the components; Includes the nature of operations, industry and environment of the components audited by others.
Factor 3: Risk: Risk of material misstatement in the financial information of components audited by the other auditor; Higher risk calls for more involvement from you.
Factor 4: Additional procedures: Additional procedures performed on the other auditor's components, resulting in significant participation by the principal auditor; These are the extra steps the standard describes for work done by other auditors.
Memory aid: M-K-R-P = Materiality, Knowledge, Risk, Procedures; Use it to structure answers. Apply each letter to the facts given.

How to solve Acceptance as Principal Auditor questions

Use this sequence for any question that asks whether an auditor can or should act as principal auditor.

1Identify the roles: who is the auditor seeking to report on the whole, and who audits the other components.
2State the rule: the auditor must consider whether his own participation is sufficient to act as principal auditor.
3Apply Factor 1: compare the portion he audits with the portion audited by others, using the figures in the case.
4Apply Factor 2: note what the case says about his knowledge of the components' business.
5Apply Factor 3: note any signs of high or low risk of material misstatement in the other auditor's portion.
6Apply Factor 4: note whether he can and will perform additional procedures on the other auditor's work.
7Weigh all four together. Do not decide on one factor alone.
8Conclude clearly: sufficient participation (can act as principal auditor) or not, and say what follows.

Quickest way: M-K-R-P in four lines

When to use it: Use it for case-scenario MCQs and short written answers when time is tight.

Write the rule in one line: own participation must be sufficient.
Write M, K, R, P and put one fact from the case against each.
Mark each factor as supporting or against.
Give a one-line conclusion based on the balance. If the case does not give a factor, say so rather than inventing facts.

Common mistakes in Acceptance as Principal Auditor

Applying a fixed percentage such as 50% as the test.
Students want a number to apply, and a high percentage feels like a clear answer.
Fix: State that the standard sets no numerical threshold. Materiality is one factor out of four and the decision is a judgment.
Discussing only materiality of the portion audited.
Materiality is the easiest factor to read from the figures in the case.
Fix: Always cover all four factors, even briefly. Marks are given for each factor.
Confusing the acceptance test with how to use the other auditor's work.
Both sit in SA 600 and the chapter flows from one to the other.
Fix: Acceptance comes first: should I act as principal auditor? Procedures on the other auditor's work are the next step, and they feed into Factor 4.
Saying that using another auditor reduces the principal auditor's responsibility.
Students mix up dividing the work with dividing the responsibility.
Fix: Do not assume the responsibility is reduced. If you accept the role, you must have enough participation to take responsibility for your opinion on the whole.
Ignoring facts about risk and knowledge given in the case.
Students focus on the numbers and skip the narrative details.
Fix: Read the case for words about the line of business, past experience with the component and the quality of its controls. These are the clues for Factors 2 and 3.
Ending without a conclusion.
Students list the factors and run out of time.
Fix: Finish with one sentence: can or cannot act as principal auditor, and why.

Worked examples

Example 1

P & Co. audits Alpha Ltd, a manufacturing company. Alpha has one subsidiary, Beta Ltd, audited by Q & Co. P & Co.'s audit covers Alpha, which accounts for about 25% of consolidated total assets and revenue. Beta, in a business P & Co. has never dealt with, accounts for the rest. Beta has weak controls and had frequent errors in the past. P & Co. has not planned any review of Q & Co.'s work. Can P & Co. act as principal auditor?

Show the solution

Rule: P & Co. must consider whether its own participation is sufficient to act as principal auditor, using the four factors.
Materiality: P & Co. audits only about a quarter of the group. Most of the numbers rest on the other auditor. This is against sufficient participation.
Knowledge: P & Co. has no experience of Beta's business. This is against.
Risk: Beta has weak controls and past errors, so the risk of material misstatement in the portion audited by Q & Co. is high. This is against.
Additional procedures: none are planned, so P & Co. would not have significant participation in Beta's audit. This is against.
Weighing: all four factors point the same way.

Answer: P & Co.'s participation is not sufficient. It should not act as principal auditor on these facts.

Example 2

R & Associates audits Gamma Ltd and its main operations, which are about 80% of consolidated assets and revenue. A small subsidiary, Delta Ltd, in the same line of business, is audited by S & Co. Delta has stable operations and a good record of reliable accounts. R & Associates knows the business well and plans to review S & Co.'s audit approach and working papers. Which statement is most appropriate? (a) R & Associates cannot act as principal auditor, because another auditor audits part of the group. (b) R & Associates can act as principal auditor, since the factors favour sufficient participation. (c) R & Associates must audit Delta itself before it can act. (d) R & Associates and S & Co. must sign the report jointly.

Show the solution

Materiality: R & Associates audits the larger part, about 80%. This supports sufficient participation.
Knowledge: it knows the business well, and Delta is in the same line. This supports.
Risk: Delta is stable with a reliable record, so the risk of material misstatement is low. This supports.
Additional procedures: it plans to review S & Co.'s approach and working papers. This supports.
Option (a) is wrong: the standard allows a principal auditor to use another auditor's work. Option (c) is wrong: the standard does not require the principal auditor to audit every component. Option (d) is wrong: acceptance does not require a joint report. Option (b) fits the analysis.

Answer: Option (b). All four factors support R & Associates acting as principal auditor.

Exam tips

Write the four factors as a short list and tie each to a fact in the case. This is how marks are earned.
Quote the rule in plain words: 'the principal auditor should consider whether his own participation is sufficient to act as principal auditor'.
In case-scenario MCQs, look for the option that reflects a judgment on all factors. Be wary of options that state a fixed percentage or an absolute bar.
Always give a conclusion. A balanced discussion with no decision loses marks.
Link this topic to the procedures and reporting topics of SA 600. A longer question may ask for acceptance first and procedures second.

Practice questions from Group Audits

Acceptance as Principal Auditor: frequently asked questions

What is the acceptance test for a principal auditor under SA 600?

The auditor must consider whether his own participation is sufficient to act as principal auditor. He looks at the materiality of the portion he audits, his knowledge of the components' business, the risk of material misstatement in the other auditor's portion, and the additional procedures he performs.

Is there a minimum percentage the principal auditor must audit?

No. The standard does not set a percentage. Materiality of the portion you audit is only one factor and must be weighed with knowledge, risk and additional procedures.

What happens if the auditor decides his participation is not sufficient?

He should not take the role of principal auditor. In an answer, state the conclusion clearly and give the factors that led to it.

How is acceptance different from using the other auditor's work?

Acceptance is the decision whether you can act as principal auditor at all. Using the other auditor's work covers the procedures you perform on that work once you accept the role. Those procedures also affect Factor 4 of the acceptance test.