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CA Final · Advanced Auditing, Assurance and Professional Ethics · Group Audits

Anand & Associates audit Sahyadri Foods Ltd, whose own operations are small. Over 85% of the consolidated financial information relates to subsidiaries audited by other auditors, Anand & Associates have little knowledge of the subsidiaries' businesses, and the subsidiaries' risk of material misstatement is high. Applying the factors in SA 600, what is the most appropriate conclusion?

Anand & Associates should assess whether their own participation is sufficient, and on these facts it looks insufficient. Their audited portion is small, their knowledge of the subsidiaries is limited and the risk is high, so they would need significant additional procedures before acting as principal auditor.

  1. AAnand & Associates can act as principal auditor, because they audit the parent company
  2. BAnand & Associates should consider whether their own participation is sufficient and, on these facts, it appears insufficient unless additional procedures give significant participationCorrect
  3. CAnand & Associates can act as principal auditor, because the other auditors are qualified Chartered Accountants
  4. DAnand & Associates must always act as principal auditor, since the group has a parent company

Explanation

SA 600 requires the auditor to consider whether their own participation is sufficient, looking at materiality of the portion they audit, knowledge of the components' business, risk of material misstatement and additional procedures performed. Here materiality is low, knowledge is low and risk is high, so participation looks insufficient unless significant additional procedures are performed. Being the parent's auditor does not by itself settle the matter.

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