Document ID: chunk:federal_register_of_legislation:F2023C00341:reg:4:p27
Version: federal_register_of_legislation:F2023C00341
Segment Type: reg
Provision Reference: reg 4 (pt 27/42)
Character Range: 85358–88554

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 on the financial information of the components.

Involvement in the Work Performed by Component Auditors (Ref: Para. 30‑31)

A54.         Factors that may affect the group engagement team's involvement in the work of the component auditor include:

(a)                The significance of the component;

(b)                The identified significant risks of material misstatement of the group financial report; and

(c)                The group engagement team's understanding of the component auditor.

    In the case of a significant component or identified significant risks, the group engagement team performs the procedures described in paragraphs 30‑31.  In the case of a component that is not a significant component, the nature, timing and extent of the group engagement team's involvement in the work of the component auditor will vary based on the group engagement team's understanding of that component auditor.  The fact that the component is not a significant component becomes secondary.  For example, even though a component is not considered a significant component, the group engagement team nevertheless may decide to be involved in the component auditor's risk assessment, because it has less than serious concerns about the component auditor's professional competency (for example, lack of industry specific knowledge), or the component auditor does not operate in an environment that actively oversees auditors.

A55.         Forms of involvement in the work of a component auditor other than those described in paragraphs 30‑31 and 42 may, based on the group engagement team's understanding of the component auditor, include one or more of the following:

(a)                Meeting with component management or the component auditors to obtain an understanding of the component and its environment.

(b)                Reviewing the component auditors' overall audit strategy and audit plan.

(c)                Performing risk assessment procedures to identify and assess the risks of material misstatement at the component level.  These may be performed with the component auditors, or by the group engagement team.

(d)                Designing and performing further audit procedures.  These may be designed and performed with the component auditors, or by the group engagement team.

(e)                Participating in the closing and other key meetings between the component auditors and component management.

(f)                 Reviewing other relevant parts of the component auditors' audit documentation.

Consolidation Process

Consolidation Adjustments and Reclassifications (Ref: Para. 34)

A56.         The consolidation process may require adjustments to amounts reported in the group financial report that do not pass through the usual transaction processing systems, and may not be subject to the same internal controls to which other financial information is subject.  The group engagement