The International Auditing and Assurance Standards Board has released an exposure draft of a standard for improving the quality of audits of group financial statements.
The proposed
The proposed standard revolves around a risk-based approach to planning and conducting a group audit. This approach aims to focus the group engagement team’s attention and effort on identifying and assessing the risks of material misstatement of the group financial statements, and designing and performing additional audit procedures to deal with those assessed risks. The proposed standard recognizes that component auditors can be, and often are, involved in all phases of a group audit. Under those circumstances, the proposed standard highlights the importance of the group engagement team’s involvement in the component auditor’s work.
The proposal also stresses the importance of exercising professional skepticism throughout the group audit. It clarifies the scope and applicability of the standard, as well as clarifies and reinforces that all international Standards on Auditing need to be applied in a group audit through establishing stronger linkages to the other ISAs, especially to proposed ISA 220 (Revised), ISA 315 (Revised 2019) and ISA 330.
“This proposed standard is critically important as many of today’s audits are group audits, including audits of the largest and most complex organizations around the world,” said IAASB chair Tom Seidenstein in a statement Monday. “The proposed revised standard addresses quality risk issues identified by audit regulators and benefits from the input of a wide range of stakeholders.”
The proposal emphasizes the need for stronger communication and interactions between the group engagement team, group engagement partner and component auditors. It includes new guidance on testing common controls and controls related to centralized activities. It also offers improved guidance on how to address restrictions on access to people and information. It also enhances special considerations in other areas of a group audit, including materiality and documentation.
Because of the impact of the COVID-19 pandemic, the IAASB, which is affiliated with the International Federation of Accountants, is departing from its normal 120-day comment period for public consultations, so the exposure draft is open for public comment until Oct. 2, 2020.
