CFAP 06: Advanced Audit and Related Services

Outlines:
ISA 600: Audit of Group F/S
Two major parts of ISA 600: Premium Content
Secret Sheet for Quick Revision
1. Auditor’s Responsibilities when he audits group F/s. (For Winter 2021)
(For students of Muhammad Asif, FCA)
2. Auditor’s Responsibilities when he involves component auditor.

Part A: Audit of Group Financial Statements

LO1: Definitions
LO 6: Type of Work on Components

Group financial statements LO 3. Planning

Component (Entities or Activities)
Component Auditor
--> by Appointed by Group Auditor, or Required by Law. Terms of the Engagement Terms may include:
--> Evaluation, and Reporting implications like Expert Audit Strategy and Audit Plan Access to Component information,
Group wide Controls management, auditor.
Permission to perform work on component
information, or engage component auditor.

LO 2: Acceptance and Continuance

Procedures LO 4: Understanding of Group and Risk
Assessment If sufficient Appropriate Evidence cannot be Selection of components will vary, and will
obtained: depend on:
Obtain Understanding of Group to determine: Select some components and perform one or 1. comparatively significant.
Evidence can be obtained on: Why: What: more of following: 2. newly formed or acquired.
1. Financial Information of all Components 1. A & C Decision Group Structure. audit of component. 3. significant changes.
2. Consolidation Process 2. Identify Significant Components Group-wide Controls. review of component. 4. Abnormal fluctuations.
Individual Financial Significance Consolidation Process. audit of area(s) having risk. 5. Internal audit function has performed.
If Evidence cannot be obtained: Significant Risk specific audit procedures addressing
1. Don't accept, or Withdraw risk.
2. Disclaimer of Opinion (if 1 is not possible)
LO 5: Materiality Determination LO 7: Consolidation Process
Obtaining Understanding: Access to information is restricted:
New Engagement: Examples:
Information/Communication from Group By circumstances, By component auditor, By group Group Engagement team shall determine: Group engagement shall:
management, previous group engagement team, management 1. Materiality for Group F/S as whole. 1. Read instructions.
component management, component auditor. 2. Qualitative Materiality in Group F/S 2. Understand and Test group-wide controls.
Continuing Engagement: Course of Action: 3. Clearly Trivial Level. 3. Ensure Completeness and Accuracy of
If Significant -->Scope Limitation. 4. Component Materiality (for Audit or Review) components.
Changes in AFRF, Management & TCWG, AFRF
5. Appropriateness of Performance Materiality 4. Evaluate Consolidation Adjustments (e.g.
Changes in Group structure, business If not Significant --> Alternative Procedures
1. a complete F/S with component auditor’s report. (for Audit). different policies, different Y/E, Intra-group
activities, group-wide controls
transactions, Balances, Unrealized Gains)
2. access to information of component kept by
group management.

LO 8: Subsequent Events LO 9: Reporting LO 10: Communication with LO 11: Documentation

"From date of F/S of Comoponent upto the date
of group auditor’s report"
1. If Significant Component --> Active Review.
2. If not Significant Component --> Passive
Review.
Auditor shall evaluate effect of Misstatements,
and Scope Limitation from Group Perspective.
Modified Opinion on Component may have
no effect on Group F/S.
UnModified Opinion on Component may
cause modification on Group F/S.
Group Management
Deficiencies in internal control.
Fraud or suspected fraud
Matters significant to component.
Group TCWG Analysis of components.
Type of work performed on components.
Involvement in work of component auditor.
Overview of type of work. Communication.
Involvement in work of component auditor.
Concerns about quality of component auditor’s work.
Restrictions on scope of audit.
Fraud or suspected frauds.
 CFAP 06: Advanced Audit and Related Services Outlines: Premium Content
ISA 600: Audit of Group F/S Two major parts of ISA 600: (For Winter 2021)
Secret Sheet for Quick Revision 1. Auditor’s Responsibilities when he audits group F/s.
(For students of Muhammad Asif, FCA) 2. Auditor’s Responsibilities when he involves component
auditor.

Part B: Using Work of Component Auditor

LO 12: Understanding the Component LO 15: If a component is subject to audit

Auditor required by Statute
LO 14: Communication with Component
Auditor
Ethich Requirements. Work of Component Auditor can be used,
Competence. considering:
Involvement in work . From group auditor to component auditor: From component auditor to group auditor: Understanding of Component Auditor
Regulatory environment. Ethical requirements. Compliance with ethical requirements (i.e. Ethics, Competence, Involvement,
Don't engage component auditor if Identified risk of material misstatement. Compliance with instructions. Regulatory Environment).
concerns about Ethics, or serious concenrs Component materiality, and clearly trivial level. List of uncorrected misstatements. Differences in financial reporting
about Competence or Involvement in work. Work to be performed. List of significant risks and related parties identified framework, auditing and other standards,
List of related parties. by component auditor. and Reporting timetable.
Communication with group auditor. Significant deficiencies in internal controls Materiality Considerations.
Procedures in First Year: Procedures in Subsequent Year: Instances of non-compliance with laws and regulations
Discuss with component auditor/ Previous Understanding. Frauds or suspected frauds.
third parties. Request component auditor to
Confirmation from component confirm changes.
auditor/professional bodies.
Resuls of QCR of component auditor.
LO 13: Involvement in the work of
Part C: Joint Audit
Component Auditor

Responsibilities of Joint Auditor: Audit Plan and Procedures: Documentation:

A joint auditor is responsible for all
work.
Compliance with Ethics and Quality Control
System:
Confirm that other joint auditor is
complying with Ethics or QC.
If not, perform significant work yourself,
or refuse engagement.
Joint Auditors Agreement:
Division of work.
Mechanism for review.
Mechanism for dispute resolution.
Acceptance and Continuance:
Preferably single Engagement Letter.
Jointly establish Overall Audit Strategy, and Risk
Assessment.
Agree allocation of work. (duplication allowed,
omission not allowed)
Review of Work Performed:
On/before report.
If work not sufficient, request other auditor for
additional work of perform yourself.
Communication:
Communication to client should be joint.
All important meetings should be joint.
Audit Report and Resolution of Differences between
Joint Auditors:
A single audit report. If difference of opinion:
Discussed with joint engagement partners.
If unresolved, refer to nominated partners.
If unresolved, issue separate reports, with Other
Matter paragraph.
Joint auditors should document following:
Confirmation letter from other joint auditor.
Audit strategy, materiality and risk assessment.
Agreed allocation of work.
Working papers supporting audit engagement
Review of work, and its adequacy.
Matters of disagreement and their resolutions.
Preferably, single Representation Letter.
Audit of Significant Component:
Involve in Risk assessment to identify
significant risk.
For this purpose, discuss Business
Activities, Susceptability to misstatement,
and Review component auditor's
Documentation of identified risk.
If Significant Risk is identified:
Evaluate appropriateness of further
audit procedures.
Involve in performing further
procedures, if necessary.
Form of Involvement:
Perform Risk Asssessment Procedures.
Reviewing Component Auditor's Audit
Strategy and Audit Plan.
Perform Further Audit Procedures,
Review of relevant audit documentation.
Participating in meetings with Component
Auditor/management.
Important Concepts for Case Studies:
1. Considerations before using/engaging
Component Auditor.
2. Joint Audit (particulalry Reporting
Consideration).
3. Type of Work on different types of
Components.