In this article, we delve deeper into the recent developments in group audits and discuss the key changes that have been implemented. We focus particularly on the recent update of International Standard on Auditing 600, which affects the audit of group financial statements. As a group auditor or auditor of a group component, it is important to be aware of these changes and the impact they may have on your work. Let’s take a closer look at the key changes.
Revision of ISA 600
The International Auditing and Assurance Standards Board (IAASB) published the revised version of ISA 600 in 2022. This revision aims to align better with recently revised standards and brings significant changes to group audits. It is important to note that the revised rules are effective from December 15, 2023. The revised standard is yet to be converted into the Dutch implementation NV COS 600 Special Considerations – Group Financial Statements (including the work of auditors of group components).
Key changes in the standard
One of the major changes is the introduction of a proactive, risk-based approach to group audits. This emphasizes the identification and assessment of risks of material misstatements. Planning the audit approach, and performing procedures targeted at these assessed risks. This change aligns closely with the revision of ISA 315. Additionally, changes have been made to clarify how the requirements of ISA 220 apply to group audits. These amendments relate to the necessary resources for carrying out the engagement, directing and supervising the audit team, and evaluating the work performed. Further clarifications have been made regarding the definition of a “component” or “group component,” the scope and application of the standard to branches, divisions, shared service centers, and uncontrolled entities. The definition of “significant components” has been removed. Specific attention is now given to assessing risks of material misstatements at the assertion level relating to group components.
Importance of robust communication
Another important aspect strengthened in the revised standard is the requirement for robust two-way communication between the engagement partner at the group level and the auditor of a group component. Timely and adequate communication between these parties is crucial for the success of group audits. It is, therefore, important to closely monitor the requirements outlined in the standard. For more information on communication among different parties in group audits, refer to our blog on effective communication in group audits.
Enhanced documentation requirements
Additionally, the revised version of ISA 600 includes enhanced documentation requirements. It clearly specifies how to handle limitations in obtaining access to specific individuals or information. It is important to follow these requirements diligently to ensure robust documentation of the work performed.
Principle-based approach
The new standard adopts a principle-based approach, meaning that it provides principles that practitioners need to apply in specific situations. This approach has been chosen to enhance the scalability of the standard, making it more applicable to group audits of varying complexities. Specific sections have been included in the standard to highlight the requirements regarding the involvement of auditors of group components (also known as “component auditors”).
Conclusion:
With the revised ISA 600, group audits are taken to a higher level. It is crucial for both group auditors and auditors of group components to be aware of the changes and adjust their audit methodologies accordingly. By adopting a proactive, risk-based approach and ensuring robust communication, auditors can enhance the quality and reliability of group audits. We recommend thoroughly studying the revised standard and reaching out to our team for specific questions or further information if needed.
