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CA Final · Advanced Auditing, Assurance and Professional Ethics · Group Audits

Kaveri Textiles Ltd has a subsidiary in Surat that is audited by CA Meera. The group auditor, CA Dinesh, has never visited the subsidiary and knows little of its business. The subsidiary's audit is assessed as carrying a high risk of material misstatement. Based on SA 600 Using the Work of Another Auditor, what is the most appropriate conclusion for CA Dinesh?

CA Dinesh should assess whether his own participation is sufficient to act as principal auditor. Because his knowledge of the business is low and the misstatement risk is high, he should consider additional procedures on the component so that he has significant participation in that audit.

  1. AHe may act as principal auditor, because relying on another auditor's report is always sufficient
  2. BHe should consider whether his own participation is sufficient, including performing additional procedures on that component to achieve significant participationCorrect
  3. CHe must resign from the group audit in every such case
  4. DHe may act as principal auditor provided he reduces the extent of his own work on the other components

Explanation

The principal auditor must weigh his knowledge of the component's business and the risk of material misstatement in the component audited by the other auditor. He must also consider additional procedures that give him significant participation in that audit. Low knowledge and high risk point to the need for such procedures. Automatic reliance is not supported, and resignation is not mandatory.

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