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

Under ISA 600 (Revised), the group auditor has set group materiality of $2m. How should the group auditor set the materiality for a component's financial information when a component auditor performs work on it?

The group auditor sets component performance materiality below group performance materiality, reflecting the risk assessment. This lowers the chance that uncorrected and undetected misstatements across components in aggregate exceed group materiality. Using the component's statutory materiality or unchanged group materiality would not achieve that.

  1. ASet component performance materiality lower than group performance materiality, based on the group auditor's risk assessmentCorrect
  2. BUse the component's own statutory materiality, which is usually higher
  3. CUse group materiality unchanged for every component
  4. DSet no materiality for components, since only group materiality is relevant

Explanation

ISA 600 (Revised) requires the group team to set component performance materiality for work on component financial information, at a level lower than group performance materiality, to reduce the risk that aggregated uncorrected misstatements exceed group materiality. Statutory or unchanged group materiality would not achieve this.

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