CA Final · Advanced Auditing, Assurance and Professional Ethics · Group Audits
Nair & Co are principal auditor of Himalaya Pharma Ltd. A subsidiary representing about 30% of group assets is audited by Shah & Co. The subsidiary has complex revenue recognition and a high risk of material misstatement. Nair & Co know little about its business. Nair & Co want to act as principal auditor. Which approach is most consistent with SA 600's acceptance considerations?
Nair & Co should assess whether their participation is sufficient, weighing the audited portion, their limited knowledge and the high risk, and perform additional procedures on the subsidiary to gain significant participation. Relying fully on the other auditor without procedures is inconsistent with SA 600.
- AAccept the role and rely fully on Shah & Co's report without any further procedures, since the portion is below 50%
- BDecline to consider the subsidiary's risk, as risk is assessed only for the parent
- CAssess whether their own participation is sufficient, considering the audited portion, their knowledge and the high risk, and perform additional procedures on the subsidiary to achieve significant participationCorrect
- DReplace Shah & Co as auditor of the subsidiary themselves without any appointment procedure
Explanation
SA 600 requires considering materiality of the portion audited, knowledge of the component's business, risk of material misstatement in the component audited by the other auditor, and performance of additional procedures resulting in significant participation. With high risk and little knowledge, Nair & Co should perform additional procedures rather than rely blindly. Replacing the auditor outside the legal appointment procedure is improper, and risk of the other auditor's components is expressly a factor.
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