Here’s how the recent changes to ISA 600 might impact your group audit. What are the key changes and what will this mean for you?
ISA 600, “Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors),” has recently undergone significant revisions. Below are the key changes effective for audits with periods beginning on or after December 15, 2023.
Proactive risk based approach
One of the key changes is the introduction of a proactive risk-based approach to the audit of groups. This means more focus on identifying and assessing the risks of material misstatement, planning the approach to the audit and performing engagement procedures that respond to the assessed risks.
Definition of the ‘engagement team’
The definition of the ‘engagement team’ now specifically includes those who perform audit procedures on a component as part of a group audit. The group engagement partner is now responsible for the quality of the component auditors’ work and determining the competence and capabilities of the component auditor. In effect, the new standard treats all parties involved in delivering the audit work across all components of the group as a single engagement team, and therefore there needs to be greater communication between all parties throughout the audit.
The group engagement partner also sets component performance materiality and is responsible for ensuring that the component auditor complies with the FRC Ethical Standard, even where components are located within jurisdictions that do not have to comply with the standard. ISA (UK) 600 also clarifies how the concepts of materiality and aggregation risk apply in a group audit.
Enhanced documentation requirements
There are also enhanced requirements in relation to documenting the exercise of professional scepticism. This includes an evaluation of whether sufficient appropriate audit evidence has been obtained (including by component auditors) to provide a basis for forming an opinion on the group financial statements.
There are enhanced documentation requirements and clarifications regarding the restrictions on access to people or information that might exist, including guidance on how these might be overcome.
Interaction with other ISAs
There is a significant interaction with ISA (UK) 315 on identifying and assessing risk and ISA (UK) 330 on responses to assessed risks and obtaining a greater understanding of the IT systems and internal control across the wider group and the risks posed across all components.
Principles based approach
Finally, the revised standard introduces a principles-based approach that is adaptable to a wide variety of circumstances, and scalable for audits of groups of different complexity. This is achieved by focusing on identifying, assessing and responding to the risks of material misstatement of the group financial statements and including separate sections throughout the standard to highlight the requirements and application material for circumstances when component auditors are involved.
Emily Callaghan
Senior Manager
In summary
The changes to ISA 600 place a stronger emphasis on coordination, risk assessment, and documentation. These revisions reflect a more structured approach to managing the complexities of group audits, particularly where multiple component auditors are involved. By enhancing the group engagement team’s responsibilities and the quality of communication and oversight, the updated ISA 600 aims to improve the reliability and consistency of audits of group financial statements across different jurisdictions and auditing environments.
If you have any questions, please do get in touch with our Audit and Assurance team at Ryecroft Glenton.
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