ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits
Kestrel Group has group financial statements materiality of $2,000,000 and group performance materiality of $1,500,000. The group team sets component performance materiality for Kestrel Asia, a component audited by a component auditor. Which is correct under ISA 600 (Revised)?
The group engagement team determines component performance materiality, and it must be lower than group performance materiality. This reduces the risk that misstatements aggregated across components exceed group materiality. Letting the component auditor choose it, or using the same figure as group performance materiality, ignores aggregation risk.
- AThe group team determines component performance materiality, which must be lower than group performance materiality to address aggregation riskCorrect
- BComponent performance materiality is set by the component auditor and may exceed group materiality
- CComponent performance materiality must equal group performance materiality for consistency
- DComponent performance materiality is unnecessary because only group materiality applies
Explanation
ISA 600 (Revised) requires the group engagement team to determine component performance materiality, set at an amount lower than group performance materiality so that the aggregate of uncorrected and undetected misstatements across components does not exceed group materiality. Letting the component auditor set a level above group materiality, or using the same figure for all, ignores aggregation risk.
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