Document ID: chunk:federal_register_of_legislation:F2023C00341:reg:4:p14
Version: federal_register_of_legislation:F2023C00341
Segment Type: reg
Provision Reference: reg 4 (pt 14/42)
Character Range: 47790–50832

of the financial report of the component will be completed in time to meet the group reporting timetable.

Definitions

Component (Ref: Para. 9(a))

A2.             The structure of a group affects how components are identified.  For example, the group financial reporting system may be based on an organisational structure that provides for financial information to be prepared by a parent and one or more subsidiaries, joint ventures, or investees accounted for by the equity or cost methods of accounting; by a head office and one or more divisions or branches; or by a combination of both.  Some groups, however, may organise their financial reporting system by function, process, product or service (or by groups of products or services), or geographical locations.  In these cases, the entity or business activity for which group or component management prepares financial information that is included in the group financial report may be a function, process, product or service (or group of products or services), or geographical location.

A3.             Various levels of components may exist within the group financial reporting system, in which case it may be more appropriate to identify components at certain levels of aggregation rather than individually.

A4.             Components aggregated at a certain level may constitute a component for purposes of the group audit; however, such a component may also prepare a group financial report that incorporate the financial information of the components it encompasses (that is, a subgroup).  This Auditing Standard may therefore be applied by different group engagement partners and teams for different subgroups within a larger group.

Significant Component (Ref: Para. 9(m))

A5.             As the individual financial significance of a component increases, the risks of material misstatement of the group financial report ordinarily increase.  The group engagement team may apply a percentage to a chosen benchmark as an aid to identify components that are of individual financial significance.  Identifying a benchmark and determining a percentage to be applied to it involve the exercise of professional judgement.  Depending on the nature and circumstances of the group, appropriate benchmarks might include group assets, liabilities, cash flows, profit or turnover.  For example, the group engagement team may consider that components exceeding 15% of the chosen benchmark are significant components.  A higher or lower percentage may, however, be deemed appropriate in the circumstances.

A6.             The group engagement team may also identify a component as likely to include significant risks of material misstatement of the group financial report due to its specific nature or circumstances.  For example, a component could be responsible for foreign exchange trading and thus expose the group to a significant risk of material misstatement, even though the component is not otherwise of individual financial significance to the group.

Component Auditor (Ref: