HKSA 600 - Group Audits (Condensed)
| Section | Key Concept | Brief Description |
|---|---|---|
| Scope & Objectives | Group audit special considerations | HKSA 600 applies to group audits involving component auditors; objectives include determining whether to act as group auditor and obtaining sufficient evidence for group opinion. |
| Definitions | Component, component auditor, significant component | Key terms defined: component (entity/business activity), component auditor (performs work for group audit), significant component (financially significant or with specific risks). |
| Responsibility | Group engagement partner's overall responsibility | Group engagement partner responsible for direction, supervision, and performance; auditor's report shall not refer to component auditor unless required by law. |
| Acceptance & Continuance | Determining ability to obtain sufficient evidence | Evaluate whether sufficient appropriate audit evidence can be obtained; if restrictions exist, consider declining or disclaiming opinion. |
| Understanding & Materiality | Understanding group, components, and component auditors; setting materiality | Obtain understanding of group, components, environments, and consolidation process; set component materiality lower than group materiality. |
| Responding to Assessed Risks | Type of work for significant vs. non-significant components | Significant components: audit or specified procedures; non-significant components: analytical procedures at group level, with additional selection if needed. |
| Communication & Documentation | Two-way communication with component auditors; documentation requirements | Communicate requirements and request confirmations; document analysis of components, involvement, and written communications. |
Scope, Objectives, and Definitions
Scope
HKSA 600 deals with special considerations for group audits, particularly those involving component auditors. Effective for periods beginning on or after 15 December 2009.
Objectives (Paragraph 8)
- Determine whether to act as auditor of group financial statements
- If acting: communicate clearly with component auditors about scope and timing, and obtain sufficient appropriate audit evidence regarding components and consolidation process
Key Definitions (Paragraphs 9-10)
| Term | Definition |
|---|---|
| Component | Entity or business activity for which financial information should be included in group financial statements |
| Component auditor | Auditor who performs work on financial information related to a component for the group audit |
| Significant component | Component of individual financial significance to the group, or likely to include significant risks of material misstatement |
| Group engagement partner | Partner responsible for the group audit engagement and its performance |
Responsibility and Acceptance
Responsibility (Paragraph 11)
The group engagement partner is responsible for the direction, supervision, and performance of the group audit engagement.
Acceptance and Continuance (Paragraphs 12-14)
The group engagement partner shall determine whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the consolidation process and the financial information of the components.
The group engagement partner shall agree on the terms of the group audit engagement in accordance with HKSA 210.
Understanding the Group and Component Auditors
Overall Audit Strategy and Audit Plan (Paragraphs 15-16)
The group engagement team shall establish an overall group audit strategy and develop a group audit plan in accordance with HKSA 300. The group engagement partner shall review the strategy and plan.
Understanding the Group, Its Components, and Their Environments (Paragraphs 17-18)
- Enhance understanding of the group, components, and environments, including group-wide controls
- Obtain an understanding of the consolidation process, including instructions issued by group management to components
Understanding the Component Auditor (Paragraphs 19-20)
If the group engagement team plans to request a component auditor to perform work, the team shall obtain an understanding of:
| Area | Description |
|---|---|
| Ethical requirements | Whether the component auditor understands and will comply with ethical requirements, and is independent |
| Professional competence | The component auditor's professional competence |
| Involvement | Whether the group engagement team will be able to be involved in the work of the component auditor |
| Regulatory environment | Whether the component auditor operates in a regulatory environment that actively oversees auditors |
Materiality
The group engagement team shall determine:
| Item | Description |
|---|---|
| Group materiality | Materiality for the group financial statements as a whole |
| Particular materiality levels | If applicable, materiality level(s) for particular classes of transactions, account balances, or disclosures |
| Component materiality | For components where component auditors will perform an audit or review; shall be lower than group materiality |
| Threshold | The threshold above which misstatements cannot be regarded as clearly trivial |
Performance Materiality (Paragraph 22)
Where component auditors will perform an audit for purposes of the group audit, the group engagement team shall evaluate the appropriateness of performance materiality determined at the component level.
Statutory Audits of Components (Paragraph 23)
If a component is subject to audit by statute, regulation, or other reason, and the group engagement team decides to use that audit, the team shall determine whether the materiality and performance materiality meet the requirements of this HKSA.
Responding to Assessed Risks
General Approach (Paragraphs 24-25)
The group engagement team shall determine the type of work to be performed on the financial information of the components and the nature, timing, and extent of its involvement in the work of the component auditors.
Determining the Type of Work
| Component Type | Required Work |
|---|---|
| Significant due to individual financial significance | Audit of the financial information using component materiality |
| Significant due to specific nature or circumstances | One or more of: audit of financial information, audit of specific account balances/transactions/disclosures, or specified audit procedures |
| Not significant components | Analytical procedures at group level; if insufficient, select additional components for audit, review, or specified procedures |
Involvement in Work Performed by Component Auditors (Paragraphs 30-31)
If a component auditor performs an audit of a significant component, the group engagement team shall be involved in the component auditor's risk assessment. At a minimum, this includes discussing business activities, susceptibility to material misstatement, and reviewing documentation of identified significant risks.
Consolidation Process and Subsequent Events
Consolidation Process (Paragraphs 32-37)
The group engagement team shall:
- Obtain an understanding of group-wide controls and the consolidation process
- Design and perform further audit procedures on the consolidation process, including evaluating whether all components have been included
- Evaluate the appropriateness, completeness, and accuracy of consolidation adjustments and reclassifications
- Evaluate whether appropriate adjustments have been made if component financial information is not prepared using the same accounting policies
- Determine whether the financial information identified in the component auditor's communication is incorporated in the group financial statements
- Evaluate whether appropriate adjustments have been made if a component has a different financial reporting period-end
Subsequent Events (Paragraphs 38-39)
Where audits are performed on the financial information of components, the group engagement team or component auditors shall perform procedures to identify events between the dates of the component financial information and the date of the auditor's report on the group financial statements.
Communication and Documentation
Communication with Component Auditor (Paragraphs 40-41)
The group engagement team shall communicate its requirements on a timely basis, including:
| From Group Engagement Team to Component Auditor | From Component Auditor to Group Engagement Team |
|---|---|
| Request for cooperation confirmation | Compliance with ethical requirements |
| Ethical requirements, especially independence | Compliance with group engagement team's requirements |
| Component materiality and threshold for clearly trivial misstatements | Identification of financial information reported on |
| Identified significant risks | Instances of non-compliance with laws or regulations |
| List of related parties | List of uncorrected misstatements |
Evaluating Sufficiency and Appropriateness of Audit Evidence (Paragraphs 42-45)
The group engagement team shall discuss significant matters with the component auditor and determine whether it is necessary to review other relevant parts of the component auditor's audit documentation.
Documentation (Paragraph 50)
The group engagement team shall include in the audit documentation:
- An analysis of components, indicating those that are significant and the type of work performed
- The nature, timing, and extent of the group engagement team's involvement in the work performed by the component auditors on significant components
- Written communications between the group engagement team and the component auditors
Communication with Management and Governance
Communication with Group Management (Paragraphs 46-48)
The group engagement team shall:
- Determine which identified deficiencies in internal control to communicate, considering deficiencies in group-wide internal control and at components
- If fraud has been identified or information indicates fraud may exist, communicate this on a timely basis to the appropriate level of group management
- If a component auditor is required by statute/regulation to express an opinion on component financial statements, request group management to inform component management of any matter that may be significant to the component's financial statements
Communication with Those Charged with Governance of the Group (Paragraph 49)
The group engagement team shall communicate:
| Item | Description |
|---|---|
| Overview of work | An overview of the type of work to be performed on the financial information of the components |
| Planned involvement | An overview of the nature of the group engagement team's planned involvement in the work of component auditors on significant components |
| Concerns about quality | Instances where the evaluation of a component auditor's work gave rise to concern about the quality of that auditor's work |
| Limitations | Any limitations on the group audit |
| Fraud | Fraud or suspected fraud involving group management, component management, employees with significant roles in group-wide controls, or others where fraud resulted in a material misstatement |
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