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

Brindle Group's auditor is planning the audit. The group engagement team has obtained an understanding of the group, its environment and the applicable financial reporting framework. Which of the following is the most appropriate step under ISA 600 (Revised) in relation to the group's components?

The group team should define components to suit its audit approach, based on how the group is structured and how information flows, so a component may be an entity, business unit, function or activity. It is not limited to legal entities, and the group team must make its own risk assessment.

  1. AIdentify components only by legal entity, ignoring how management organises the business
  2. BTreat any component with a different year-end as outside the scope of the group audit
  3. CDetermine components based on the group's structure and information flows, which may be by entity, business unit, function or activity, to suit the audit approachCorrect
  4. DRely on component management's own risk assessment for deciding the scope of work

Explanation

ISA 600 (Revised) allows the engagement team to define components in a way that facilitates the audit, considering the group's structure, systems and controls, and how information is aggregated. Legal entity is not the only basis, and component management's assessment cannot substitute for the group team's own risk assessment.

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