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

Quill Group's auditor is scoping the audit. Component B is only 4% of group profit before tax, but it operates a trading desk in derivatives with weak controls, and management override is suspected. Which approach is most appropriate under ISA 600 (Revised)?

Component B should be treated as relevant to a significant risk of material misstatement for the group, so further audit procedures must be performed on the risk-related balances or transactions. Its small size is not a reason to exclude it, because scoping is driven by risk as well as by quantitative size.

  1. ADo no work on Component B because it is below the quantitative scoping threshold
  2. BPerform analytical procedures only at group level, since the component is small
  3. CTreat Component B as a component with a significant risk of material misstatement to the group and design and perform further audit procedures, such as an audit of specific account balances or classes of transactions related to that riskCorrect
  4. DRely solely on Component B's internal audit reports without involvement from the group team

Explanation

Scoping is risk-based, not just quantitative. A component that gives rise to a significant risk of material misstatement of the group financial statements needs responsive further procedures, which may be specific to the risk-related balances. Group-level analytics alone do not address a significant risk, and relying only on internal audit without evaluation is inadequate.

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