GROUP AUDIT

GROUP AUDIT


The principal auditor is responsible to report on the group f/s

Acceptance as principal auditor:
Consider the following:

1. Materiality of the portion of the f/s which he audits


2. Degree of knowledge


3. Risk of material misstatements audited by other auditor


4. Performance of additional procedures of components audited by the other auditor


5. General points relating to acceptance of appointment

Planning a group audit:

1. Client procedure for preparing group f/s including:* group a/c instructions

         * standard a/c forms ie layout of f/s of each subs.
         * client’s timetable to produce f/s of indiv co or subs.

1. The auditor own time table ie. * Audit staffing

* liaison with other auditor of subs/assoc
* anticipate problem areas (eg overseas subs)

Using the work of another auditor

Basic principle:
Principal auditor should consider how O.A. work will affect their audit

They should consider:

1. If their own participation is sufficient to enable them to act as principal auditors

1. The professional competence of the O.A. eg * do they belong to a professional body

* reputation; a review of their prev. audit work

      3. Obtain satisfactory evidence that the work of O.A. is adequate
          The principal auditor should also advice the O.A. of:
     (Independence requirements. Obtain written representation on compliance
     (Areas requiring special consideration(key risk)
     (Time table for completion of the audit
     ( Procedures to notify them of unusual circumstances
     (A/c, auditing & reporting requirements which are relevant


      4. Significant findings of O.A.

The principal auditor may adopt the following procedure:

1. Discussion with the O.A. on the audit procedure

1. Review written summary of these procedures. It is normal to send a questionnaire. This will provide the foll info: (a) accounting policies

   (b) acc details needed for consolidation not available from the published f/s
   (c ) info relevant for the group f/s, but not for the subs own f/s

      3. Review the O.A. working papers


Audit procedure in the consolidation process

Step 1. Check transposition from the audited acc. of the susb to the consol schedule

Step 2. Check that consol adjustments are appropriate/ consistent with previous years. This will involve:

• Record dates & cost of acq’n of subs & assets


• Calculate goodwill & pre acq’n reserves


• Prepare overall recon of movements or reserves & minority interest

Step 3. Check for business combination

• Appropriate treatment ie. Acq’n or uniting of interest


• Appropriate date used of combination


• Correct  calculation of goodwill & amortization period reasonable

Step 4. For disposals:

• Appropriate date – agree to sales documents


• Results of investment have been included up to the date of disposal & whether figure is reasonable (mgt acc. may have to be used)

Step 5. Consider whether previous treatment of existing susb/assoc is still correct (eg level of influence, degree
     of support)

Step 6. Arithmetical accuracy of consolidated workings

Step 7. Review consolidated accounts for compliance with legislation

Step 8. Review consol accounts to confirm they give a true and fair view

Evidence that may be required for the group

• Support letters

The subsidiary in isolation might not be a going concern. If this is the case, the group account should recognize this. However, the group may not allow the subs to go bust and therefore the subs is really a going concern. The auditor will need evidence to substantiate that the subs will be supported by the group. The directors will usually provide a support/ comfort letter stating that.
Assessment of the control environment:

Factors include:

• Organisational structure of the company


• Level of parents involvement


• Degree of autonomy of mgt of components