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

Marlow & Partners is group auditor of Sandstone Group. In obtaining an understanding of the group, its components and their environments, which of the following is the group engagement team required to understand as part of identifying and assessing risks of material misstatement?

The group team must understand the group's structure and business model, group-wide controls and the consolidation process, along with component activities and environments. This is not limited to significant components, and component accounting policies matter, whereas audit fees are not part of risk assessment.

  1. AOnly the components that are individually financially significant
  2. BThe group's structure and business model, group-wide controls, and the consolidation processCorrect
  3. COnly the accounting policies of the parent, since component policies are irrelevant
  4. DThe audit fees agreed with each component auditor

Explanation

ISA 600 (Revised), with ISA 315 (Revised 2019), requires understanding of the group and its environment, the group-wide controls, the consolidation process, and the components' activities, including how they are organised and use IT. Understanding is not limited to significant components, and component policies and instructions matter for consolidation. Fee arrangements are not part of the risk assessment understanding.

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