Chapter 13: Group Audits (SA 600 Using the Work of Another Auditor)
1. Core Definitions & Scope of SA 600
Applies when the independent auditor (Principal Auditor), auditing financial statements of an entity (e.g., Parent company or Consolidated FS), decides to use the work of another independent auditor (Other / Component Auditor) with respect to financial information of one or more components (subsidiaries, branches, JVs, associates).
| Term | Definition under SA 600 |
|---|---|
| Principal Auditor | The auditor with responsibility for reporting on the financial statements of an entity when those financial statements include financial information of one or more components. |
| Other Auditor / Component Auditor | An auditor, other than the principal auditor, with responsibility for reporting on the financial information of a component included in the financial statements. |
| Component | A division, branch, subsidiary, joint venture, associated company or other entity whose financial information is included in the financial statements audited by principal auditor. |
• Does NOT apply to Joint Auditors (governed by SA 299).
• Does NOT apply to auditor's relationship with a Predecessor Auditor (governed by SA 510).
2. Principal Auditor's Mandatory Procedures
The principal auditor should consider the professional competence of the other auditor in the context of the specific assignment (if not a member of ICAI).
| Audit Step | Specific Action Required |
|---|---|
| 1. Communication & Coordination | Advise other auditor of the use that will be made of their work; coordinate timetable for review; communicate areas requiring special consideration, accounting/auditing requirements. |
| 2. Questionnaire / Checklist | Issue detailed questionnaire or checklist to other auditor regarding significant accounting policies, internal controls, compliance with statutory requirements. |
| 3. Review of Findings | Review written summary of other auditor's procedures and findings (through questionnaires, memoranda, or discussions). |
| 4. Supplemental Tests | If necessary, perform supplementary tests of records or financial statements of the component. |
3. Documentation Requirements (SA 600)
The principal auditor must document the following in the audit working papers:
- List of Components: All components whose financial information was audited by other auditors, indicating their significance (share of total assets, revenue, profits).
- Names of Auditors: Names of other auditors of each significant component.
- Conclusions Reached: Conclusions regarding components that are not material individually or in aggregate.
- Procedures Performed: Manner in which other auditor's work was reviewed and coordinated (questionnaires, meetings, correspondence).
4. Reporting & Division of Responsibility
The principal auditor is NOT responsible for the work done by the other auditor, provided the principal auditor has exercised reasonable care and due diligence. In the auditor's report on consolidated/group financial statements, the principal auditor clearly states the division of responsibility by indicating the extent to which the financial statements of components have been audited by other auditors (quantifying total assets, revenues, net cash flows).
| Situation with Component Auditor | Impact on Principal Auditor's Report |
|---|---|
| Component Auditor modifies their report (Qualified/Adverse) | Principal auditor must evaluate whether the modification is material to the group financial statements. If material, modify group audit report accordingly. |
| Principal Auditor unable to use other auditor's work (and cannot perform sufficient alternative procedures) | Scope limitation → Qualified Opinion or Disclaimer of Opinion under SA 705. |