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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Using the work of others

Orion Group's audit team identifies that a component, Delta Sdn Bhd, has a significant risk of material misstatement in revenue recognition specific to its operations. The component is not individually financially significant. Under ISA 600 (Revised), what is the most appropriate response?

The group team should design and perform procedures responsive to the significant risk at Delta, either itself or through a component auditor. ISA 600 (Revised) is risk-based, so lack of financial significance does not remove the need. Group analytics or management representations alone are insufficient for a significant risk.

  1. ADesign and perform audit procedures responding to the assessed risk at the component, using the group engagement team or a component auditor, since the risk is significantCorrect
  2. BPerform no procedures because the component is not individually financially significant
  3. CPerform only analytical procedures at group level on the component as a whole, regardless of the risk
  4. DRequest that management of the component confirm the revenue figures in writing and rely on that representation

Explanation

ISA 600 (Revised) is risk-based, not only size-based. A significant risk of material misstatement at a component requires responsive audit procedures, which may be performed by the group team or a component auditor. Ignoring the component, using group-level analytics only, or relying on management representations would not give sufficient appropriate evidence for a significant risk.

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