Document ID: chunk:federal_register_of_legislation:F2023C00341:reg:4:p26
Version: federal_register_of_legislation:F2023C00341
Segment Type: reg
Provision Reference: reg 4 (pt 26/42)
Character Range: 82480–85619

significant risk of inventory obsolescence, the group engagement team may perform, or request a component auditor to perform, specified audit procedures on the valuation of inventory at a component that holds a large volume of potentially obsolete inventory, but that is not otherwise significant.

Components that Are Not Significant Components (Ref: Para. 28‑29)

A50.         Depending on the circumstances of the engagement, the financial information of the components may be aggregated at various levels for purposes of the analytical procedures.  The results of the analytical procedures corroborate the group engagement team's conclusions that there are no significant risks of material misstatement of the aggregated financial information of components that are not significant components.

A51.         The group engagement team's decision as to how many components to select in accordance with paragraph 29, which components to select, and the type of work to be performed on the financial information of the individual components selected may be affected by factors such as the following:

           * The extent of audit evidence expected to be obtained on the financial information of the significant components.

           * Whether the component has been newly formed or acquired.

           * Whether significant changes have taken place in the component.

           * Whether the internal audit function has performed work at the component and any effect of that work on the group audit.

           * Whether the components apply common systems and processes.

           * The operating effectiveness of group‑wide controls.

           * Abnormal fluctuations identified by analytical procedures performed at group level.

           * The individual financial significance of, or the risk posed by, the component in comparison with other components within this category.

           * Whether the component is subject to audit required by statute, regulation or for another reason.

         Including an element of unpredictability in selecting components in this category may increase the likelihood of identifying material misstatement of the components' financial information.  The selection of components is often varied on a cyclical basis.

A52.         A review of the financial information of a component may be performed in accordance with ASRE 2410.[22],[23]  The group engagement team may also specify additional audit procedures to supplement this work.

A53.         As explained in paragraph A13, a group may consist only of components that are not significant components.  In these circumstances, the group engagement team can obtain sufficient appropriate audit evidence on which to base the group audit opinion by determining the type of work to be performed on the financial information of the components in accordance with paragraph 29.  It is unlikely that the group engagement team will obtain sufficient appropriate audit evidence on which to base the group audit opinion if the group engagement team, or a component auditor, only tests group‑wide controls and performs analytical procedures