Document ID: chunk:federal_register_of_legislation:F2025C00096:body:0:p20
Version: federal_register_of_legislation:F2025C00096
Segment Type: other
Provision Reference: 
Character Range: 57597–60751

risk as described in paragraphs 14(a) and A19.  In a group audit, there may be a higher probability that the aggregate of uncorrected and undetected misstatements may exceed materiality for the group financial report as a whole because audit procedures may be performed separately on the financial information of components across the group.  Accordingly, component performance materiality is set by the group auditor to reduce aggregation risk to an appropriately low level.

Professional Scepticism (Ref: Para. 9)

 1.          ASA 220[39] provides examples of the impediments to the exercise of professional scepticism at the engagement level, including unconscious auditor biases that may impede the exercise of professional scepticism when designing and performing audit procedures and evaluating audit evidence.  ASA 220 also provides possible actions that the engagement team may take to mitigate impediments to the exercise of professional scepticism at the engagement level.

 2.          Requirements and relevant application material in ASA 315,[40] ASA 540[41] and other ASAs address the exercise of professional scepticism, and include examples of how documentation may help provide evidence of the auditor's exercise of professional scepticism.

 3.          All members of the engagement team are required to exercise professional scepticism throughout the group audit.  The group auditor's direction and supervision of engagement team members, including component auditors, and the review of their work, may inform the group auditor about whether the engagement team has appropriately exercised professional scepticism.

 4.          The exercise of professional scepticism in a group audit may be affected by matters such as the following:

           * Component auditors in different locations may be subject to varying cultural influences, which may affect the nature of the biases to which they are subject.

           * The complex structure of some groups may introduce factors that give rise to increased susceptibility to risks of material misstatement.  In addition, an overly complex organisational structure may be a fraud risk factor in accordance with ASA 240[42] and therefore may require additional time or expertise to understand the business purpose and activities of certain entities or business units.

           * The nature and extent of intra-group transactions (e.g., transactions that involve multiple entities and business units within the group or multiple related parties), cash flows or transfer pricing agreements may give rise to additional complexities.  In some cases, such matters may also give rise to fraud risk factors.

           * When the group audit is subject to tight reporting deadlines imposed by group management, this may put pressure on engagement team members when completing the work assigned.  In these circumstances, the engagement team may need to take additional time to appropriately question management's assertions, make appropriate judgements, or appropriately review the audit work performed.

 1.          The exercise of professional scepticism by the group auditor includes