The Group auditor is primarily responsible for establishing and providing an audit opinion on the group or consolidated financial statements. The underlying premise is to ensure that the auditor can analyze and subsequently scrutinize the group’s financial statements. The basic components of the group financial statements include subsidiaries, associated joint ventures, and other branches that may or may not be included.
The components mainly audited in this regard are mainly audited by the group auditor, but might also be audited by an alternate independent firm of auditors, referred to as other auditors. In this regard, the component auditor is entrusted with the responsibility to revisit the group’s financial statements to get a better idea of the information to be disclosed.
Objectives of the Group Auditor
There are two main objectives of the Group Auditor. Firstly, it can be seen that the group auditor is expected to establish that he is supposed to act as a group auditor. In the same manner, the group auditor is also expected to gather sufficient and appropriate evidence so that they can reach an opinion about the consolidated financial statements. Gathering substantial evidence is perhaps the more important phenomenon within the scope of the group auditor.
Scope of Work Performed by the Group Auditor
The scope of work that the group auditor performs can be broadly categorized into three components. These stages of work are given below.
Stage One – Gathering evidence on the components
The first stage of the work performed by the group auditors concerns planning and risk assessment, involvement in the work of component auditors, and the consolidation process.
As far as planning and risk assessment is concerned, it can be seen that the group auditor needs to establish a deep understanding of the manner in which the group is structured, in addition to the materiality thresholds of all the components that are present within the group itself. Furthermore, they also need to analyze the inherent risk by assessing the risk of material misstatement depicted in all financial statements. Furthermore, materiality levels should also be established when it comes individually significant components.
Secondly, it is also important to realize the fact that there should also be proper clarity when it comes to determining the work of component auditors.
It can be seen that different audit companies might audit some companies within the group. In this regard, it should be ensured that the group auditor cannot solely rely on the audit report of the previous auditors.
Therefore, the auditor is required to carry out the audit procedures himself to be entirely sure. Proper audit procedures should be designed and executed in this regard to ensure that the best possible results are obtained, and there is no material misstatement when it comes to the individual concerns within the group itself.
Stage Two – Audit of the Consolidation Process
To audit the consolidation process itself, it is essential to ensure that the audit procedures are designed to revisit the consolidation process of the group and gauge the complexity of the areas of judgments to ascertain the higher degree of audit risk.
It is also essential to induce higher planning to minimize the audit risk to a minimal level. Examples of audit procedures used for this purpose include steps that can check the mathematical and financial accuracy of the information presented and review the disclosures necessary for the group financial statements.
This evidence prepared in this case is also used to double-check figures for goodwill and get a clear idea about the underlying audit planning procedures.
The underlying purpose of developing a sound understanding of the audit statement is based on the fact that there is proper clarity about the parent’s financial statements in relation to the financial statements of the individual components of the subsidiary.
Stage Three – Group Audit Opinion
The group auditor is finally supposed to issue an audit opinion based on the financial statements. This is primarily done to obtain a thorough review of the evidence obtained in the first and the second stages.
Therefore, it can be seen that numerous different aspects need to be covered when it comes to the overall scope of the group auditor. However, to summarize the points made above, it can be seen that it primarily relies on the underlying notions of ensuring that the company properly audits the group and the individual concerns to be able to get a proper idea about the group performance.