Guide to Using International Standards on Auditing in - IFAC

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188 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Paragraph # Relevant Extracts from ISAs 510.13 If the predecessor audi<strong>to</strong>r’s opinion regarding the prior period’s financial statements included a modification <strong>to</strong> the audi<strong>to</strong>r’s opinion that remains relevant and material <strong>to</strong> the current period’s financial statements, the audi<strong>to</strong>r shall modify the audi<strong>to</strong>r’s opinion on the current period’s financial statements in accordance with ISA 705 and ISA 710. (Ref: Para. A9) The requirements are summarized below. Exhibit 15.5-1 Address Do Opening Balances Contain Misstatements That Could Affect the Current Period? Determine Impact on Current Period of Identified Misstatements Determine Impact on Audit Opinion Description • Read most recent financial statements and predecessor audi<strong>to</strong>r’s report (if any); • Determine that prior period’s closing balances have been correctly brought forward and reflect use of appropriate accounting policies; • Review predecessor audi<strong>to</strong>r’s working papers; and • Perform audit procedures in current period <strong>to</strong> obtain evidence regarding the opening balances. This is particularly important where the previous year’s financial statements were not audited. • Perform such additional audit procedures as are appropriate; • Evaluate any predecessor audi<strong>to</strong>r’s modification <strong>to</strong> the audit opinion; and • Ensure accounting policies reflected in opening balances have been consistently applied through the current period. If the predecessor audi<strong>to</strong>r’s modified audit opinion remains relevant or the opening balances contain a misstatement that materially affects the current period’s financial statements (the effect of which was not appropriately accounted for, presented, or disclosed), a qualified opinion or an adverse opinion would be necessary. 15.6 ISA 600—Special Considerations—Audits of Group Financial Statements (Including the Work of Component Audi<strong>to</strong>rs) Paragraph # ISA Objective(s) 600.8 The objectives of the audi<strong>to</strong>r are: (a) To determine whether <strong>to</strong> act as the audi<strong>to</strong>r of the group financial statements; and (b) If acting as the audi<strong>to</strong>r of the group financial statements: (i) To communicate clearly with component audi<strong>to</strong>rs about the scope and timing of their work on financial information related <strong>to</strong> components and their findings; and (ii) To obtain sufficient appropriate audit evidence regarding the financial information of the components and the consolidation process <strong>to</strong> express an opinion on whether the group financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
189 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Paragraph # Relevant Extracts from ISAs 600.9 For purposes of the ISAs, the following terms have the meanings attributed below: (a) Component—An entity or business activity for which group or component management prepares financial information that should be included in the group financial statements. (Ref: Para. A2-A4) (b) Component audi<strong>to</strong>r—An audi<strong>to</strong>r who, at the request of the group engagement team, performs work on financial information related <strong>to</strong> a component for the group audit. (Ref: Para. A7) (c) Component management—Management responsible for preparing the financial information of a component. (d) Component materiality—The materiality for a component determined by the group engagement team. (e) Group—All the components whose financial information is included in the group financial statements. A group always has more than one component. (f) Group audit—The audit of group financial statements. (g) Group audit opinion—The audit opinion on the group financial statements. (h) Group engagement partner—The partner or other person in the firm who is responsible for the group audit engagement and its performance, and for the audi<strong>to</strong>r’s report on the group financial statements that is issued on behalf of the firm. Where joint audi<strong>to</strong>rs conduct the group audit, the joint engagement partners and their engagement teams collectively constitute the group engagement partner and the group engagement team. This ISA does not, however, deal with the relationship between joint audi<strong>to</strong>rs or the work that one joint audi<strong>to</strong>r performs in relation <strong>to</strong> the work of the other joint audi<strong>to</strong>r. (i) Group engagement team—Partners, including the group engagement partner, and staff who establish the overall group audit strategy, communicate with component audi<strong>to</strong>rs, perform work on the consolidation process, and evaluate the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements. (j) Group financial statements—Financial statements that include the financial information of more than one component. The term “group financial statements” also refers <strong>to</strong> combined financial statements aggregating the financial information prepared by components that have no parent but are under common control. (k) Group management—Management responsible for preparing and presenting the group (l) financial statements. Group-wide controls—Controls designed, implemented and maintained by group management over group financial reporting. (m) Significant component—A component identified by the group engagement team (i) that is of individual financial significance <strong>to</strong> the group, or (ii) that, due <strong>to</strong> its specific nature or circumstances, is likely <strong>to</strong> include significant risks of material misstatement of the group financial statements. (Ref: Para. A5-A6) This standard provides guidance on the special considerations that apply <strong>to</strong> group audits. It outlines responsibilities, communications and requirements for and between the: • Group engagement partners, group engagement teams; and • Component audi<strong>to</strong>rs who perform work (such as auditing a division, branch, or subsidiary of the group) on behalf of the group engagement team and then report on the results. The requirements outlined may also be useful for other situations where an audi<strong>to</strong>r involves another audi<strong>to</strong>r in some part of the audit of financial statements. (This could include observing an inven<strong>to</strong>ry count or performing specific procedures at a remote location.)
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Guide to Using International Standards on Auditing in - IFAC

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