Friday, April 10, 2015

Overview of component auditors' audit working papers - International Standard of Auditing 600 ("ISA 600")

ISA 600 dealt with the work of related auditors and other auditors in the audit of group financial statement - to elaborate, if your audit client is a holding company, who has a subsidiary audited by another auditor, then you have to consider this ISA 600.

For instance, audit client A is audited by your audit firm. Audit Client A has a material subsidiary in China, i.e. subsidiary B, which is audited by another auditor. If you are required to sign-off consolidated account of Audit Client A then you are required to consider ISA 600 when audit / consider the financial of subsidiary B.

ISA 600 requires the auditor of the parent company to be proactive in participating in the audit of subsidiary B - as, ultimately, the consolidated account will be signed off by the auditor of parent company. Auditor for audit client A should not solely rely on the work carried out by the auditor of subsidiary B.

Hence, the auditor of the holding company should consider ISA 600 seriously and in detail when planning the group audit. The following key factors should be considered:

- significant risk of the Group and subsidiary
- significant accounts of the subsidiary
- audit materiality and methodology for the audit of subsidiary B
- communication protocol
- timeline of the audit
- deliverables by auditor of subsidiary B

The above matters must be considered by the auditor of Client A in planning its group audit - it's also important to go through the above with corporate management to identify if there's any other matters to be emphasized.

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