International Standard on Auditing (ISA) 600, “Using the Work of Another Auditor,” provides guidance to auditors when they are involved in group audits or when they need to use the work of another auditor in their audit procedures. In complex business environments, group audits are common, where multiple auditors are engaged to audit the financial statements of different components of a group of entities. ISA 600 outlines the responsibilities of the principal auditor and the other auditors, and the procedures to be followed to ensure that the audit work is appropriately coordinated and the audit opinions are reliable. This article provides an overview of ISA 600, including its definitions, explanations, examples, and case studies.
Definitions:
Principal Auditor:
The auditor who is responsible for the group audit and assumes overall responsibility for the direction, supervision, and performance of the audit work of the group engagement team.
Component Auditor:
The auditor who performs audit procedures on the financial information of a component of the group, which is included in the group financial statements.
Explanations:
ISA 600 sets out the responsibilities of the principal auditor and the component auditor in a group audit engagement. The principal auditor is responsible for overseeing and coordinating the work of the component auditors to obtain sufficient appropriate audit evidence to support the group audit opinion. The component auditor, on the other hand, is responsible for performing audit procedures on the financial information of the component allocated to them and providing relevant audit findings and conclusions to the principal auditor.
ISA 600 also provides guidance on the communication and coordination between the principal auditor and the component auditor. It emphasizes the need for effective communication, including sharing of audit plans, findings, and conclusions, to ensure that the audit work is appropriately coordinated and any significant risks or issues are addressed in a timely manner.
Examples:
Example 1 – Group Audit: ABC & Co. is engaged as the principal auditor for the group audit of XYZ Corporation, which has subsidiaries in multiple countries. ABC & Co. appoints local auditors in each country as component auditors to audit the financial statements of the subsidiaries. As the principal auditor, ABC & Co. is responsible for coordinating and overseeing the audit work of the component auditors. This includes reviewing their audit plans, assessing the qualifications and independence of the component auditors, and obtaining relevant audit findings and conclusions from them to form an opinion on the group financial statements.
Example 2 – Shared Responsibility: DEF & Co. and GHI & Co. are jointly engaged as principal auditors for the group audit of LMN Corporation. DEF & Co. is responsible for the audit of the parent company, while GHI & Co. is responsible for the audit of a significant subsidiary. Both auditors share the responsibility for the group audit and need to work collaboratively to ensure that the audit work is appropriately coordinated, and the group financial statements are fairly presented.
Case Studies:
Case Study 1 – Global Conglomerate: ABC & Co. is engaged as the principal auditor for the group audit of a global conglomerate, which has subsidiaries in various industries and geographic locations. ABC & Co. appoints component auditors in each country and industry to audit the financial statements of the subsidiaries. During the audit, ABC & Co. identifies that one of the component auditors has not followed the applicable auditing standards and has missed significant audit procedures. As the principal auditor, ABC & Co. is responsible for addressing this issue, including obtaining additional audit evidence and evaluating the impact on the group financial statements.
Case Study 2 – Multinational Corporation: DEF & Co. is engaged as the principal auditor for the group audit of a multinational corporation, which has subsidiaries in different countries. DEF & Co. appoints component auditors in each country to audit the financial statements of the subsidiaries. During the audit, DEF & Co. receives audit findings from one of the component auditors indicating potential material misstatements in the financial statements of a significant subsidiary. DEF & Co. communicates with the component auditor, obtains additional audit evidence, and assesses the impact on the group financial statements. DEF & Co. also considers the qualifications and independence of the component auditor and takes appropriate actions to address the identified issues.
Conclusion:
ISA 600, “Using the Work of Another Auditor,” provides important guidance to auditors when they are involved in group audits or when they need to use the work of another auditor in their audit procedures. The standard emphasizes the need for effective communication and coordination between the principal auditor and the component auditor to ensure that the audit work is appropriately coordinated and the audit opinions are reliable. Examples and case studies can help auditors understand the practical application of ISA 600 in real-world scenarios. By following the guidance of ISA 600, auditors can ensure that their group audits are conducted in accordance with applicable auditing standards and the audit opinions are based on sufficient appropriate audit evidence, providing assurance on the reliability of the group financial statements.