Regulatory updates

On 7 April 2022, the International Auditing and Assurance Standards Board (IAASB) releasedISA 600 (Revised): Special Considerations-Audits of Group Financial Statements (Including the Work of Component Auditors). ISA 600 (Revised) includes new and revised requirements that align the standard with the recently revised standards, such as:

• International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements,
• ISA 220 (Revised), Quality Management for an Audit of Financial Statements, and
• ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment.

ISA 600 (Revised) intends to encourage proactive management of quality at the group management and component level, reinforce the need for robust communication and interactions during the group audit and foster an appropriately independent and challenging mindset of the auditor.

Some of the significant changes and clarifications specified in ISA 600 (Revised) include:

• Risk-based approach: IAASB has introduced the risk-based approach framework for planning and performing a group audit engagement in order to lay greater emphasis on identifying and assessing the risks of material misstatement and performing further audit procedures in response to the assessed risks. Under the risk-based approach, component auditors can be, and often are, involved in all phases of the group audit.
• Restrictions on access to information and people: ISA 600 (Revised) clarifies the various types of restrictions that might exist, such as restrictions on access to people and information (e.g., access to component management, those charged with governance of the component, component auditors, or information at the component) and component auditor audit documentation. The revised standard also provides guidance on ways to overcome such restrictions.
• Materiality considerations: ISA 600 (Revised) clarifies how the concepts of materiality and aggregation risk apply in a group audit.
• Documentation: ISA 600 (Revised) prescribes enhanced documentation requirements and application material to emphasise the linkage to the requirements in ISA 230, Audit Documentation, and the documentation requirements in other relevant ISAs. It also highlights the importance of the group auditor’s review of component auditor’s audit documentation. Clarification is also provided on what the group auditor may need to document in different situations, including when there are restrictions on access to component auditor audit documentation.
• Communication and Interactions: ISA 600 (Revised) strengthens and clarifies the importance of two-way communications between the group auditor and component auditor. It includes various aspects of the group auditor’s interaction with component auditors, such as communicating relevant ethical requirements, determining competence and capabilities of the component auditor, and determining the appropriate nature, timing, and extent of involvement by the group auditor in the work of the component auditor.

Effective date: ISA 600 (Revised) will be effective for audits of group financial statements for periods beginning on or after December 15, 2023.

To access the text of ISA 600 (Revised), please click here