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CA Final · Advanced Auditing, Assurance and Professional Ethics · Group Audits

Rao & Co. is considering acting as principal auditor of Himalaya Foods Ltd. It audits only a small share of the group's financial information, knows little of the components' business, and the other auditors' components carry high misstatement risk. Which conclusion is consistent with SA 600?

Rao & Co. should assess whether additional procedures on the other auditors' components would give it significant participation, and if its participation remains insufficient it should not act as principal auditor. SA 600 makes acceptance depend on materiality, business knowledge, misstatement risk and additional procedures, not on formalities.

  1. ARao & Co. should assess whether additional procedures regarding the other auditors' components can give it significant participation; if its participation is not sufficient, it should not act as principal auditorCorrect
  2. BRao & Co. may act as principal auditor because SA 600 sets no conditions for acceptance
  3. CRao & Co. may act as principal auditor as long as the other auditors are ICAI members
  4. DRao & Co. should act as principal auditor since SA 600 became operative for periods beginning on or after April 1, 2002

Explanation

SA 600 requires the auditor to weigh materiality of the portion it audits, knowledge of the components' business, misstatement risk and the additional procedures that could result in significant participation. With weak factors, Rao must see whether additional procedures give significant participation; otherwise its participation is insufficient. The other options ignore these conditions.

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