The International Auditing and Assurance Standards Board (IAASB) is revising the International Standard on Auditing 600, Audits of Group Financial Statements (including the Work of Component Auditors). The IAASB has issued a consultation paper to seek the views of its global stakeholders.
The proposed standard includes some significant changes to the currently effective standard including.
- Changing the definition of a component. The proposed standard defines a component from the perspective of the group auditor (i.e. how the group auditor views the group structure for purposes of planning and performing the group audit). This is likely to have significant implications for how group auditors can structure and conduct their audit engagements.
- Clarifying the definition of “Group Financial Statements” to include entities that consolidate the financial information of their divisions and branches. This change may have implications for certain audit engagements considered to be outside of the scope of the current standard.
- The current standard address access restrictions imposed by group management and its implications for the group audit. The proposed standard also includes a new requirement addressing situations where restrictions on access are outside the control of group management.
- The current standard’s response to assessed risks is driven by identification of “significant components”. The proposed standard not only changes the definition of a component, it removes the notion of “significant component” and replaces the current approach to group audits with a risk-based approach as required by ISA 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement. This change of approach may have important implications for group audits.
- Enhanced and clarified requirements relating to the group engagement partner responsibilities when component auditors are involved, specifically how the requirements in the proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements applies to group audits.
It is the NZAuASB’s strategic objective to adopt international auditing and assurance standards. Generally, once a standard has been issued by the IAASB, the NZAuASB then issues the New Zealand equivalent standard. This is usually without further consultation, unless compelling reasons have been identified to amend the standard for use here in New Zealand.
As many Public Interest Entities (PIEs) prepare group financial statements (e.g. most listed companies in NZX as well as some Tier 1 and Tier 2 charities prepare consolidated financial statements), the implications for the revisions made to ISA 600 for audit quality and public interest in auditing are paramount. It is therefore vital for the NZAuASB to know what New Zealand audit practitioners’ assessments of these changes are. Their feedback will:
- Inform the NZAuASB’s response to the IAASB, thus influencing the standard and
- Provide the basis for any compelling reasons why the NZAuASB should change ISA 600 for New Zealand application where appropriate.
We have provided different avenues for audit practitioners (and other interested stakeholders) to help us get their views and ideas relating to this proposed standard.
- Participate in our webinar on group audit
- Get in touch by contacting us.
There are no posts