Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits

Brightwell Group has group materiality of $4,000,000. The group auditor sets component materiality of $2,400,000 for Component X, whose component auditor also audits X's statutory financial statements with local materiality of $3,000,000. The component auditor proposes to use $3,000,000 for the group work. What should the group engagement team conclude?

The component auditor should use $2,400,000, the component materiality set by the group engagement team, for the group work. A higher local statutory materiality cannot replace it, since doing so would increase the risk that aggregate misstatements exceed group materiality.

  1. AThe component auditor must use $2,400,000 for work on the group reporting package, as this is the component materiality set by the group teamCorrect
  2. BThe component auditor may use the higher of the two amounts, as the local statutory audit takes precedence
  3. CThe component auditor may use $4,000,000, because group materiality overrides all lower thresholds
  4. DThe component auditor may choose any amount, provided the audit opinion on the statutory financial statements is unmodified

Explanation

The group team communicates the component materiality to be used for the group audit work. If local statutory materiality is higher than this, the component auditor cannot apply it for group purposes, because the group-level aggregation risk depends on the lower figure. Using $3,000,000 or $4,000,000 would exceed the amount set by the group team and weaken the group conclusions.

Did you get it right without looking?

One question tells you little. A timed set on Group audits shows your real accuracy, how long you take and where you lose marks.

Practise Group auditsFree diagnostic mock

More Group audits questions