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

Group auditor Penn & Rowe is planning the audit of Calder Group. Which of the following best describes an element of the understanding of the group required at the planning stage under ISA 600 (Revised)?

The group team must understand the group's structure and business activities, group-wide controls and the consolidation process, so it can identify and assess risks of material misstatement in the group financial statements. Focusing only on policies, large components or excluding component controls would be incomplete.

  1. AUnderstanding the group's consolidation process, including instructions issued to components, and the group-wide controls, without needing to consider component-level controls
  2. BUnderstanding only the group's published accounting policies, since controls are tested by component auditors
  3. CUnderstanding the group structure and business activities, group-wide controls, and the consolidation process, to identify and assess risks of material misstatement of the group financial statementsCorrect
  4. DUnderstanding only those components whose assets exceed the group performance materiality

Explanation

ISA 600 (Revised) requires the group team to understand the group and its environment, structure, business model, group-wide controls and consolidation process in order to assess risks at group level. Limiting understanding to accounting policies or to large components is inadequate, and component-level controls may also be relevant, so the first option is too narrow.

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