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

Brindle Group's consolidated revenue is 400 million. A subsidiary, Tarn Ltd, contributes 3% of group revenue and 2% of group profit before tax. It has no significant assets or liabilities, and no identified significant risks of material misstatement for the group arise from it. How should the group audit team treat Tarn Ltd under ISA 600 (Revised)?

Tarn Ltd is small and carries no significant risk for the group, so it need not receive component-level audit work. The group team can cover it with analytical procedures at group level. It cannot simply be ignored, because the team must still conclude that sufficient appropriate evidence exists over the group as a whole.

  1. AIt must receive a full-scope audit because every component must be audited
  2. BIt may be excluded from further audit procedures, with the group team performing analytical procedures at group level, since it is not an individually significant component and has no significant risksCorrect
  3. CIt must be subject to specific audit procedures on revenue only
  4. DIt can be ignored completely with no group-level procedures

Explanation

Tarn is neither individually financially significant nor associated with significant risks, so the group team can address it through group-level analytical procedures. ISA 600 (Revised) takes a risk-based approach and does not require work on every component. Ignoring it entirely is wrong because the group team must still evaluate whether the remaining unaddressed components give sufficient appropriate evidence.

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