Guide to Using International Standards on Auditing in - IFAC

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192 <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 Consolidation Process 600.32-37 Subsequent Events 600.38-39 Communication with the Component Audi<strong>to</strong>r 600.40-41 Summarized Extracts from the Requirements Section The group engagement team shall design and perform further audit procedures on the consolidation process <strong>to</strong> respond <strong>to</strong> the assessed risks of material misstatement of the group financial statements arising from the consolidation process. This shall include evaluating whether all components have been included in the group financial statements. If the group financial statements include the financial statements of a component with a financial reporting period end that differs from that of the group, the group engagement team shall evaluate whether appropriate adjustments have been made <strong>to</strong> those financial statements in accordance with the applicable financial reporting framework. The group engagement team or the component audi<strong>to</strong>rs shall perform procedures designed <strong>to</strong> identify subsequent events that may require adjustment <strong>to</strong> or disclosure in the group financial statements. The group engagement team shall request the component audi<strong>to</strong>rs <strong>to</strong> notify the group engagement team if they become aware of subsequent events. The group engagement team shall communicate its requirements <strong>to</strong> the component audi<strong>to</strong>r on a timely basis. This communication shall set out the work <strong>to</strong> be performed, the use <strong>to</strong> be made of that work, and the form and content of the component audi<strong>to</strong>r’s communication with the group engagement team. This would include: • Confirmation that the component audi<strong>to</strong>r will cooperate with the group engagement team; • Relevant ethical and independence requirements; • Component materiality; • Identified significant risks of material misstatement of the group financial statements, due <strong>to</strong> fraud or error, and that are relevant <strong>to</strong> the work of the component audi<strong>to</strong>r; and • A list of related parties prepared by group management, and the timely communication of related parties not previously identified by group management or the group engagement team. The group engagement team shall request the component audi<strong>to</strong>r <strong>to</strong> communicate matters relevant <strong>to</strong> the group engagement team’s conclusion with regard <strong>to</strong> the group audit. For example: • Compliance by component audi<strong>to</strong>r with: – Ethical requirements including independence and professional competence, and – The group engagement team’s requirements; • What financial information of the component is being reported upon; • Instances of non-compliance with laws or regulations; • A list of uncorrected misstatements; • Indica<strong>to</strong>rs of possible management bias;
193 <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 Communication with the Component Audi<strong>to</strong>r 600.40-41 (continued) Evaluating the Sufficiency and Appropriateness of Audit Evidence Obtained 600.42-45 Communication with Group Management and Those Charged with Governance of the Group 600.46-49 Summarized Extracts from the Requirements Section • Any identified significant deficiencies in internal control at the component level; • Other significant matters that the component audi<strong>to</strong>r communicated or expects <strong>to</strong> communicate <strong>to</strong> those charged with governance of the component, including fraud or suspected fraud; • Any other matters that may be relevant <strong>to</strong> the group audit, including exceptions noted in the written representations that the component audi<strong>to</strong>r requested from component management; and • The component audi<strong>to</strong>r’s overall findings, conclusions, or opinion. The group engagement team shall: • Discuss significant matters arising from the evaluation of evidence with the component audi<strong>to</strong>r, component management, or group management, as appropriate; and • Determine whether it is necessary <strong>to</strong> review other relevant parts of the component audi<strong>to</strong>r’s audit documentation. If the work of the component audi<strong>to</strong>r is insufficient, the group engagement team shall determine what additional procedures are <strong>to</strong> be performed, and whether they are <strong>to</strong> be performed by the component audi<strong>to</strong>r or by the group engagement team. The group engagement team shall evaluate whether sufficient appropriate audit evidence has been obtained from the audit procedures performed. The group engagement partner shall evaluate the effect on the group audit opinion of any uncorrected misstatements, and any instances where there has been an inability <strong>to</strong> obtain sufficient appropriate audit evidence. The group engagement team shall determine which identified deficiencies in internal control <strong>to</strong> communicate <strong>to</strong> group management and those charged with governance. If fraud has been identified, the group engagement team shall communicate this on a timely basis <strong>to</strong> the appropriate level of group management. The group engagement team shall communicate the following matters: • An overview of the type of work <strong>to</strong> be performed on the financial information of the components; • An overview of the nature of the group engagement team’s planned involvement in the work <strong>to</strong> be performed by the component audi<strong>to</strong>rs on the financial information of significant components; • Instances where the group engagement team’s evaluation of the work of a component audi<strong>to</strong>r gave rise <strong>to</strong> a concern about the quality of that audi<strong>to</strong>r’s work; • Any limitations on the group audit, for example, where the group engagement team’s access <strong>to</strong> information may have been restricted; and • Fraud or suspected fraud involving group management, component management, employees who have significant roles in group-wide controls, or others where the fraud resulted in a material misstatement of the group financial statements.
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Guide to Using International Standards on Auditing in - IFAC

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