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

Quill Group's auditor is planning the audit and identifies a subsidiary, Rowan Ltd, that is not individually financially significant but includes a specific class of transaction that gives rise to a significant risk of material misstatement of the group financial statements. What approach is most consistent with ISA 600 (Revised)?

The group team should design and perform further audit procedures that address the significant risk at Rowan Ltd, whether on the component's financial information or specific transactions. Small size does not remove the need, and analytical procedures alone or management certification would not respond adequately.

  1. APerform no work, because the component is below the quantitative threshold for significance
  2. BPerform only group-level analytical procedures, as significance is determined solely by size
  3. CDesign and perform further audit procedures that address the significant risk, which may be done on the specific class of transactions or on the component's financial informationCorrect
  4. DAsk Rowan Ltd's management to certify that the risk has been addressed

Explanation

Under ISA 600 (Revised), the group team designs responses to assessed risks of material misstatement regardless of component size, and the work may be performed on the component's financial information, on specific balances or classes, or through other procedures. Quantitative size is only one consideration, and a management certification is not audit evidence of sufficient quality for a significant risk.

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