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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Auditing, Assurance and Professional Ethics

Case: Nandini Textiles Ltd is a subsidiary of Sagar Industries Ltd, whose consolidated financial statements are audited by M/s Iyer & Associates (group auditor). Nandini's financial statements are audited by a different firm, M/s Bose & Co, and Nandini is a significant component because of its size. The group engagement team wants to decide on involvement in the work of the component auditor. Which approach is consistent with SA 600 (Revised) principles?

The group auditor should understand the component auditor, communicate requirements clearly, and evaluate the adequacy of the work performed. The group engagement partner remains solely responsible for the group opinion, so blind acceptance of the work, or dividing responsibility by naming the component auditor, is not appropriate.

  1. AAccept the component auditor's work without any evaluation since the component auditor is a CA firm
  2. BTake full responsibility of the component by redoing the entire audit and ignoring the component auditor's work
  3. CObtain an understanding of the component auditor, communicate clearly the requirements, and evaluate the adequacy of the work performed, as the group auditor remains responsible for the group opinionCorrect
  4. DMention the component auditor's name in the opinion to divide responsibility for the group opinion

Explanation

Under SA 600 (Revised), the group engagement partner is responsible for the group opinion and must direct, supervise and review the component auditor's work after understanding the component auditor and communicating requirements. Referring to the component auditor in the opinion does not reduce this responsibility.

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